Section 43B(h): the 45-day rule for payments to micro and small suppliers

Since assessment year 2024-25, amounts owed to registered micro and small enterprises that are not paid within the time allowed under the MSMED Act are disallowed as a deduction until the year they are actually paid. For a company with many small suppliers, this turns payables ageing into a tax matter.

What the section says

Section 43B(h) allows a deduction for sums payable to a micro or small enterprise only in the year the payment is made, if the payment is beyond the period in Section 15 of the MSMED Act. That period is 15 days where there is no written agreement and the agreed period, capped at 45 days, where there is one. Unlike other items in Section 43B, paying before the return filing date does not help; the test is the MSMED time limit itself.

Which suppliers are covered

Suppliers registered on Udyam as micro or small enterprises, for goods manufactured or services rendered. Medium enterprises are not covered. Traders registered on Udyam are, in general, not covered for this purpose because their registration is limited to priority sector lending benefits. The practical step is to collect the Udyam certificate from every supplier and record the category in the vendor master.

Effect at year end

If a covered invoice is outstanding on 31 March beyond its 15 or 45 day limit, the expense is added back in that year's computation and allowed in the year of payment. The timing difference is real cash: tax is paid earlier on profits that are, in commercial terms, already spent. For a company with Rs 2 crore of such dues outstanding at year end, the add-back can mean tax of roughly Rs 50 lakh brought forward by a year.

How to run payables so nothing is disallowed

Flag MSME suppliers in the vendor master with the category and the agreed credit period. Age payables against the MSMED limit, not the invoice terms. Review the list fortnightly from January and weekly in March. Where cash is tight, prioritise MSME invoices approaching the limit over others. Keep written agreements with suppliers whose terms exceed 15 days, since without one the limit is 15 days, not 45.

In BAL's CFO Plus and CFO Group packages, 43B(h) ageing is a standing item in the monthly close and in the year-end checklist, with supplier follow-up handled by the team.