Section 43B(h)
MSME payment disallowance
Section 43B(h) of the Income-tax Act, 1961 allows a business to deduct a sum owed to a micro or small enterprise only in the year it is actually paid, when it is paid later than the time limit in section 15 of the MSMED Act, 2006.
Inserted by the Finance Act 2023 and applying from assessment year 2024-25 (financial year 2023-24 onwards), the rule turns slow payment of small suppliers into a tax cost. A purchase from a micro or small mill that is past its deadline and still unpaid on 31 March is not deductible in that year, which can raise the year's taxable income by the whole unpaid amount.
The deadline comes from the MSMED Act. Payment is due on the date agreed in writing, which cannot be more than 45 days from the day the goods are accepted (or deemed accepted); with no written agreement, it is due within 15 days. Most of section 43B lets a business keep the deduction by paying before its return is due; that relief does not extend to clause (h). The payment has to be inside the MSMED time limit, or the deduction moves to the year of payment.
It covers micro and small enterprises, not medium ones, and suppliers registered under the MSMED framework (Udyam). Traders have been able to register on Udyam since July 2021 for priority-sector lending, and are generally treated as outside the delayed-payment provisions — which is why it matters whether a supplier registered as a manufacturer or a trader, and why it is worth confirming each case with your CA.
Section numbers here are those of the Income-tax Act, 1961. The Income-tax Act, 2025 applies from 1 April 2026 under its own numbering.
Key facts
- In force from AY 2024-25 (FY 2023-24 onwards); inserted by the Finance Act 2023.
- MSMED Act s.15: agreed date at most 45 days from acceptance; 15 days with no written agreement.
- Covers micro and small enterprises only, not medium.
- Paying before the return due date does not save the deduction for clause (h).
- Late-payment interest under MSMED s.16: compound, with monthly rests, at three times the RBI bank rate.
Who this affects
Any business buying from micro or small enterprises — for a yarn trader, most small spinning and twisting units.
How YarnTally handles it
Suppliers carry MSME category, Udyam number, agreed days (45 at most, enforced) and a registered-as-trader flag that is treated as not covered. The MSME payables screen (Growth plan) lists what must be paid by when, what is late now, what falls due this week and what would be unpaid on 31 March, with an estimated tax cost at a rate you set; mills whose status is unknown are listed separately. It works bill by bill from mill invoices, allocates payments not linked to a bill oldest-first, and says so. Not tax advice.
See what else it doesReviewed September 2026. This is general information about how these rules work, not tax or legal advice, and thresholds and due dates do change. Check your own position with your chartered accountant before acting on it.