Section 43B(h) Explained: The MSME 45-Day Payment Rule (2026)

Section 43B (renumbered under the Income-tax Act, 2025)(h) has changed the arithmetic of paying MSME suppliers: buy from a micro or small enterprise and pay late, and the purchase deduction slips into the year the money actually moves. The rule has applied from AY 2024-25 and forces buyers to treat supplier payments as a tax deadline rather than a cash-flow choice. For suppliers, it arms an already strong statutory remedy with a commercial reason for customers to pay on time.

What Section 43B(h) actually says

Where a buyer purchases goods or services from a micro or small enterprise, the deduction for that purchase is allowed only if the payment is made within 45 days of acceptance — or within the period agreed in the contract where that agreed period does not exceed 45 days. Pay inside the window and the deduction lands in the normal year, whether you follow accrual or cash accounting.

Miss the window and the deduction shifts to the year of actual payment. The expense is taxed in the year it accrues and is claimed only when the money leaves the account, so accrual accounting no longer defers the hit. For a March invoice settled in the next financial year, the buyer’s taxable income for the accrual year rises by that amount, and the deduction arrives a year later.

Who the rule covers

Section 43B(h) applies where the supplier is a Udyam-registered micro or small enterprise. Medium enterprises are excluded, and suppliers without Udyam registration do not trigger the rule — so registration is the entry ticket for both the tax rule and the interest remedies, and an MSME Udyam registration service completes it in a day. Classification therefore runs off the supplier’s Udyam certificate, which is why buyers now capture the Udyam number in their vendor masters. The provision applies from AY 2024-25 onwards, and the corresponding rule carries forward under the Income-tax Act, 2025 that governs from 1 April 2026.

The supplier’s remedies: 3x interest and MSME Samadhaan

The payment rule sits on top of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which already obliges buyers to pay within the agreed period or the default 45-day window. Where payment is delayed, Section 16 of the MSMED Act charges the buyer compound interest at three times the RBI-notified bank rate on the outstanding amount for the period of delay.

A supplier who cannot recover directly can escalate through MSME Samadhaan, the portal for filing applications before the Micro and Small Enterprises Facilitation Council (MSEFC). The council takes up the reference against the buyer, and the award carries the weight of a decree. For buyers, the interest outflow compounds the 43B(h) disallowance, making a delayed MSME payment expensive on both fronts.

For buyers: building accounts-payable discipline

• Tag the vendor base — record each supplier’s Udyam registration and classification (micro, small, medium, none) in the vendor master, and refresh it periodically.
• Capture acceptance dates — the 45-day clock runs from acceptance of goods or services, so log delivery notes, installation reports or service sign-offs promptly.
• Align payment runs — schedule MSME payables so they clear inside the window, and flag invoices approaching the limit in your ageing report.
• Watch year-end dues — unpaid MSME amounts at 31 March inflate taxable income of that year, so clear or provision for them knowingly before closing the books.

For suppliers: protecting your cash flow

• Complete Udyam registration — the 45-day rule and the 3x interest remedy depend on your registration being live and correctly classified.
• Document acceptance — obtain signed delivery challans, work-completion certificates or email acknowledgements, because the due date is anchored to acceptance.
• Track the window per invoice — follow up before the 45th day rather than after, when the customer’s own tax incentive is gone.
• Escalate through MSME Samadhaan — where payment stalls, file the MSEFC application and claim the statutory compound interest as part of the recovery.

GST credit timing is a separate track

Section 43B(h) is an income-tax provision and does not change your eligibility to claim GST input tax credit. ITC follows its own conditions under Section 16(2) of the CGST Act — possession of a valid invoice, receipt of goods or services and payment to the supplier within 180 days, failing which the credit is reversed. The GST 2.0 rate rationalisation effective 22 September 2025 does not alter either timeline, so the two laws continue to run in parallel: verify a supplier’s registration with a GST number verification check, and manage the income-tax and GST clocks independently.

Key takeaways

• From AY 2024-25, purchases from micro and small enterprises are deductible only if paid within 45 days of acceptance or the agreed period not exceeding 45 days.
• Late payments shift the deduction to the year of actual payment — accrual accounting no longer defers the disallowance.
• Only Udyam-registered micro and small suppliers trigger the rule; medium enterprises are excluded.
• Suppliers hold MSMED Section 16 compound interest at 3x the RBI bank rate and the MSME Samadhaan MSEFC route.
• GST ITC timing under the 180-day rule is unaffected by 43B(h).

Frequently asked questions

Does Section 43B(h) apply to payments to medium enterprises?

No. The rule covers suppliers registered as micro or small enterprises on the Udyam portal. Medium enterprises, though covered by the MSMED Act for interest purposes, are outside the 43B(h) deduction restriction.

What happens if I pay an MSME supplier after 31 March?

The purchase is deducted in the year the payment is actually made. Your taxable income for the accrual year rises by the unpaid amount, and the deduction becomes available only when you settle the invoice later.

Can the buyer and supplier agree to a longer credit period?

The deduction window holds only where the agreed period does not exceed 45 days. An agreed period beyond 45 days does not preserve the deduction in the accrual year if payment crosses 45 days, so model the tax cost before stretching terms.

Is the 3x interest on delayed MSME payments itself deductible?

Interest payable on delayed payment to a micro or small supplier under the MSMED Act is governed by the same payment-based deduction logic of Section 43B. Practically, buyers should treat both the principal and the interest as deductions available on payment, and check the current provision wording while computing.

How does a supplier file under MSME Samadhaan?

The supplier files an MSEFC application on the MSME Samadhaan portal citing the invoice, acceptance evidence and the delayed amount. The Facilitation Council then takes up the matter with the buyer and can award the principal along with compound interest.

Disclaimer: Tax laws change frequently. Verify current rates and deadlines on the official portals (incometax.gov.in, gst.gov.in) or consult a qualified professional before acting.