Yes, the rule continues. Section 37(1) and (2)(g) of the Income-tax Act, 2025 allow an amount payable to a micro or small enterprise beyond the Section 15 MSMED Act limit (agreed period up to 45 days, or 15 days if nothing is agreed) only in the tax year it is actually paid. Section 37(3), which saves other items paid before the return due date, expressly excludes clause (g). So for 31 March 2027, list every MSE creditor, test each invoice against its Section 15 due date and pay before that date runs out.
What changed on 1 April 2026, and what did not
The Income-tax Act, 2025 uses "tax year" in place of "previous year" and renumbers almost every provision. The actual-payment rules that used to be in Section 43B are now in Section 37. Clause (g) of Section 37(2) reads: amount payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006. The test, the 45-day cap and the consequence are the same as under the old clause (h).
| Point | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Provision | Section 43B(h) | Section 37(2)(g), read with 37(1) |
| First year | FY 2023-24 (AY 2024-25) | Tax year 2026-27 onwards |
| Relief for payment before return due date | Not available for clause (h) | Not available: Section 37(3) excludes clause (g) |
| Due date test | Section 15, MSMED Act | Section 15, MSMED Act (unchanged) |
The MSMED (Amendment) Act, 2026, passed by Parliament in August 2026, changes registration, dispute resolution, TReDS and penalties. The government's own summary of the amendment does not list any change to the 45-day limit in Section 15. Recheck if the Ministry notifies anything new before 31 March 2027.
The 31 March checklist
- Tag every MSE creditor. Collect Udyam numbers and the category (micro, small or medium) from each supplier. Medium enterprises and traders are outside the rule; keep the supplier's declaration on file.
- Record the acceptance date for each invoice: the date goods or services were accepted, or deemed accepted if you raised no written objection within 15 days of delivery.
- Compute the Section 15 due date: the agreed date, capped at 45 days from acceptance, or 15 days where nothing was agreed in writing. A 60 or 90-day PO term is read down to 45 days. See the 45-day rule.
- Run an MSE ageing as at 31 March. Every invoice whose due date has already passed and is still unpaid is disallowed for 2026-27. Every invoice whose due date falls after 31 March is safe if paid by that due date.
- Pay before the due date, not just before the return. Payment in April or May saves the deduction only for invoices whose Section 15 date is in April or May.
- Disputed invoices: document the dispute in writing. Holding back an undisputed amount on a disputed invoice still triggers the rule.
- Reconcile with the MSME-1 return and the notes to accounts. The same ageing feeds the half-yearly MSME Form 1 due on 30 April and the Section 22 disclosure.
- Book the deferred deduction for 2027-28 for anything paid late, so it is not lost when you do pay.
Worked example (hypothetical)
A private company closes its books on 31 March 2027 with three invoices from a Udyam-registered small manufacturer, each ₹10,00,000.
| Invoice | Accepted on | Agreed term | Section 15 due date | Paid on | Result for tax year 2026-27 |
|---|---|---|---|---|---|
| A | 1 December 2026 | None in writing | 16 December 2026 (15 days) | Unpaid on 31 March | Disallowed; deductible in the year paid |
| B | 15 February 2027 | 45 days | 1 April 2027 | 1 April 2027 | Allowed: paid within the limit, even though after 31 March |
| C | 15 February 2027 | 60 days in PO | 1 April 2027 (capped at 45) | 20 April 2027 | Disallowed; deductible in 2027-28 |
Invoices A and C push ₹20,00,000 of expense out of 2026-27. At an assumed tax rate of 25% (surcharge and cess ignored), the company pays about ₹5,00,000 more tax for 2026-27 and gets it back only in the year it pays. On top, the supplier can claim compound interest at three times the RBI bank rate under Section 16 of the MSMED Act, and that interest is not deductible at all.
Edge cases buyers get wrong
- Supplier registered mid-year: the rule applies to supplies made after the supplier became a micro or small enterprise. Keep the registration date on your vendor master.
- Advance paid, balance outstanding: only the unpaid balance past the due date is caught.
- Services billed monthly: each monthly invoice has its own acceptance date and due date.
- Capital goods: the clause speaks of amounts otherwise allowable as a deduction; for a capital purchase the effect on depreciation needs your tax adviser's view.
- Group companies buying from the same MSE: each buyer entity tests its own payables.
Suppliers can read this page too: it explains why a reminder in February that mentions the buyer's year-end deadline often works. See recovering dues before 31 March. If a buyer still does not pay, a legal notice or a free consultation is the next step.
Sources
Last reviewed: 2026-10-21. Information for Indian businesses; not legal advice.