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Sec 43B(h) Buyer-Side Compliance
If you buy from micro or small enterprises, paying late now has a tax cost as well as an interest cost. Amounts due to them and unpaid beyond the time allowed by the MSMED Act are deductible only in the year you actually pay.
The rule in brief
| Point | Position |
|---|---|
| Time allowed to pay (MSMED Act s.15) | As agreed in writing, but not more than 45 days from acceptance; 15 days where there is no written agreement |
| Tax provision | Section 43B(h) of the Income-tax Act, 1961; carried into section 37(2)(g) of the Income-tax Act, 2025 |
| Effect | Deduction for the expense is allowed only in the year of actual payment if paid beyond the s.15 time limit |
| Return due date grace | Under the 2025 Act, the grace period up to the return due date does not apply to this clause |
| Which suppliers | Micro and small enterprises; not medium enterprises. Traders are generally outside the MSMED supplier definition; confirm against CBDT guidance |
| Interest on late payment | Compound interest at three times the RBI bank rate with monthly rests (MSMED Act s.16), which is not tax-deductible |
Source: Rajya Sabha USQ 242 (21.07.2026), as reproduced by TaxGuru (secondary)
What buyers should put in place
- 1
Tag suppliers
Collect the Udyam certificate and classification of each supplier and record it in the vendor master.
- 2
Fix payment terms
Written agreements with credit periods of 45 days or less, and a process to record the date of acceptance.
- 3
Track and pay
Ageing of MSE payables in the monthly MIS, with priority for dues approaching the limit. TReDS discounting can help.
- 4
Report correctly
Disclose MSME dues in the financial statements, file the half-yearly MSME Form I and reflect any disallowance in the tax audit.
This is a summary for planning. Apply it to your facts with your tax adviser, and check the current text of the Income-tax Act, 2025 and CBDT guidance.
Prefer to talk it through?
Request a call, WhatsApp call or office meeting in Lucknow at a time that suits you. A Chartered Accountant will confirm the slot.