What is Section 43B(h) of the Income-Tax Act?

Inserted by the Finance Act 2023 (effective AY 2024-25 / FY 2023-24), clause (h) of Section 43B allows a deduction for any sum payable to a micro or small enterprise only in the year it is actually paid, unless it is paid within the time limit specified in Section 15 of the MSMED Act (15 days, or up to 45 days if there is a written agreement).

What is the time limit to pay an MSME supplier?

Under Section 15 of the MSMED Act: if there is a written agreement, the agreed date but not more than 45 days from acceptance of goods/services; if there is no agreement, within 15 days.

Does 43B(h) apply to medium enterprises or traders?

No. It applies only to micro and small enterprises that are registered under the MSMED Act (Udyam). Medium enterprises are excluded, and traders/wholesalers/retailers are generally outside the manufacturer/service-provider scope.

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

Updated 24 June 2026 · 7 min read · By KyaTax

If your business buys from micro or small (MSME) suppliers, Section 43B(h) of the Income-Tax Act can disallow your purchase/expense — and increase your taxable profit — simply because you paid late. Inserted by the Finance Act 2023 and applicable from FY 2023-24 (AY 2024-25), this rule has made on-time vendor payments a tax issue, not just a cash-flow one. Here's what it means and how to stay safe.

⚠️ In one line: a sum payable to a micro/small enterprise is deductible only in the year you actually pay it — unless you pay within the MSMED-Act time limit (15 days, or up to 45 days with a written agreement).

The time limit (Section 15, MSMED Act)

Situation	Pay within
Written agreement exists	The agreed date — but max 45 days from acceptance of goods/services
No written agreement	15 days from acceptance

Pay within this window → deduction allowed normally (accrual basis). Miss it → the expense is disallowed in the year of accrual and allowed only in the year of actual payment. Unlike other 43B items, paying before the return-filing due date does not rescue it.

Who does 43B(h) apply to?

Supplier must be a micro or small enterprise registered under MSMED Act (Udyam). Medium enterprises are outside it.
Manufacturers and service providers are covered; pure traders/wholesalers/retailers are generally outside the MSMED supplier definition.
The buyer is any assessee computing income under "Profits & gains of business or profession" (those maintaining books / liable to tax audit).
Interest payable to MSMEs under the MSMED Act for delays is itself not deductible.

A quick example

You buy goods worth ₹5,00,000 from a registered small enterprise on 1 March 2026, no written agreement (15-day limit). You pay on 10 May 2026. Since payment is beyond 15 days and falls in the next year, the ₹5,00,000 is disallowed in FY 2025-26 and allowed only in FY 2026-27 (year of payment) — raising your FY 2025-26 taxable profit (and tax) accordingly.

📒 Track MSME vendors & pay on time

KyaTax Books flags MSME suppliers and their due dates, so 43B(h) never bites. Books → dashboard → on-time payments.

Open KyaTax Books →

How to stay compliant

Identify MSME suppliers: collect Udyam numbers and mark micro/small vendors in your books.
Track the clock per bill: 15 or 45 days from acceptance — not from invoice date alone.
Prioritise MSME payments before year-end so nothing crosses the limit on 31 March.
Reconcile at year-end: list any MSME amounts outstanding beyond the limit and add them back in the computation (and 3CD clause 22).
Keep written agreements where you need the 45-day window instead of 15.

A live books-and-payments system makes this automatic. With KyaTax Books you record the vendor (with MSME/Udyam no.), the dashboard shows what's due, and you clear MSME dues on time — turning a tax risk into a routine. For companies, our Virtual CFO handles vendor payments and the year-end 43B(h) working end-to-end.

FAQ

From which year is 43B(h) applicable?

From FY 2023-24 (Assessment Year 2024-25) onwards.

Does it apply if the MSME supplier is not registered under Udyam?

No — the benefit/restriction is tied to enterprises registered under the MSMED Act. Unregistered suppliers fall outside 43B(h) (but confirm their status in writing).

Is the disallowed amount lost forever?

No — it is simply deferred. It becomes deductible in the year you actually make the payment.