Section 43B(h): The 45-Day MSME Payment Rule

Payment timelines and MSME classification thresholds can change. This article is for general information and does not constitute tax advice.

What It Does

Under old Section 43B(h), effective 1 April 2024, an expense for goods or services purchased from a Micro or Small Enterprise registered under the MSMED Act, 2006 is deductible only if paid within the timeline set by Section 15 of that Act: 15 days with no written agreement, or up to 45 days where a written agreement specifies a credit period — that 45 days is an absolute ceiling regardless of what the agreement promises. Applies to any buyer purchasing from a registered Micro or Small supplier, covers both goods and services, and specifically excludes Medium enterprises and (under the prevailing interpretation) traders.

The Part That Actually Matters: 31 March, Not the 15/45-Day Deadline

Missing the 15 or 45-day window by itself doesn’t trigger disallowance. What matters is whether the amount is still unpaid as of 31 March. Paying 60 days after purchase but before that year’s 31 March still preserves the full deduction. Only genuinely outstanding amounts at year-end get disallowed, and the disallowed expense simply moves to whichever year the payment is actually made — a timing shift, not a permanent loss.

A Separate, Additional Consequence: MSMED Interest

Independent of the tax disallowance, Section 16 of the MSMED Act imposes compound interest at three times the RBI bank rate on the delayed amount, from the day after the statutory deadline to actual payment, regardless of whether that’s before or after 31 March. This interest is never deductible for income tax, a harsher standalone consequence layered on top.