Section 43B(h) provides that any sum payable by a taxpayer to a micro or small enterprise for goods or services is deductible only in the previous year in which it is actually paid, if the payment is made beyond the time limit in Section 15 of the MSMED Act (agreed period up to 45 days, or 15 days if none agreed). Payments made within that limit are deductible on accrual as usual.
How Section 43B(h) works in India
A buyer that books a ₹10 lakh purchase from a small supplier on 20 March and pays on 30 June of the next financial year has paid after the 45-day limit. The ₹10 lakh is not deductible in the year of purchase; it is deductible in the year of payment. The buyer's taxable profit for the first year rises by ₹10 lakh. If the buyer pays within 45 days of acceptance, even if that falls in the next financial year, the deduction stays in the year of accrual. Auditors now ask for an MSME-wise ageing of creditors and report disallowances in the tax audit report.
Why it matters for getting paid
For the first time, late payment to a small supplier directly increases the buyer's tax bill in the current year. CFOs of listed and large private companies now instruct their teams to clear micro and small vendor dues within 45 days, especially before 31 March. Mentioning Section 43B(h) and the 45-day rule in a reminder or legal notice often moves an invoice from the purchase desk to the finance head.
How FundRaksha uses it
FundRaksha's notices for MSME clients set out the Section 15 due date, the Section 16 interest and the Section 43B(h) consequence for the buyer in one page. The combination is a major reason about 60% of cases settle before any filing. A free consultation will confirm whether your buyers fall under this provision.
Worked example (hypothetical)
A private company buys ₹10,00,000 of goods from a small Udyam-registered supplier, delivered and accepted on 1 March 2026, PO terms 60 days. The Section 15 due date is 15 April 2026 (45 days). The company pays on 30 May 2026. Because payment was after the Section 15 limit, the ₹10,00,000 is deductible in FY 2026-27, not FY 2025-26. At a 25% corporate tax rate (plus surcharge and cess, ignored here for simplicity), the company pays roughly ₹2,50,000 more tax for FY 2025-26 and recovers it the following year, a real cash-flow cost. Had it paid by 15 April, the deduction would have remained in FY 2025-26.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.