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

Last updated: 27 June 2026 · Applies fully to FY 2025-26 and FY 2026-27.

Section 43B(h) of the Income Tax Act says that if you buy goods or services from a Micro or Small enterprise and do not pay within the MSMED Act time limit — 15 days without a written agreement, or up to 45 days with one — the expense is disallowed in that financial year and becomes deductible only in the year you actually pay. It applies only to Micro and Small, Udyam-registered, non-trading suppliers. Medium enterprises and pure traders are excluded.

Key takeaways

• The rule: payments to Micro/Small suppliers must be made within 15 days (no written agreement) or up to 45 days (with a written agreement) — the MSMED Act, Section 15 limit.
• The penalty: if unpaid beyond that window at year-end, the expense is disallowed for that FY and allowed only in the year of actual payment — you pay tax now, get the deduction later.
• Who's covered: only Micro and Small enterprises that are Udyam-registered. Medium enterprises are excluded, and traders are excluded — only manufacturing and service MSEs get Section 15 protection.
• Effective from: inserted by the Finance Act 2023, effective 1 April 2024 (AY 2024-25) — live for FY 2025-26 and FY 2026-27.
• Interest too: under MSMED Act Section 16, delayed payment carries compound interest at three times the RBI bank rate, and that interest is itself not deductible.
• Defence: a payables tracker that flags every Micro/Small bill and counts down to its 15/45-day deadline.

Fact box. Section 43B(h) was inserted by the Finance Act 2023 and is effective from 1 April 2024 (AY 2024-25 onward). It allows a deduction for amounts payable to a Micro or Small enterprise only when actually paid, unless paid within the time limit specified in Section 15 of the MSMED Act, 2006. (Source: Income Tax Act, Section 43B(h); Finance Act 2023.)

What is Section 43B(h)?

Section 43B(h) is a clause in the Income Tax Act that ties your tax deduction for a purchase to paying your Micro or Small supplier on time. Normally a business deducts an expense in the year it's incurred (accrual). Section 43B(h) carves out an exception: for amounts owed to a Micro or Small enterprise, the deduction is allowed in the year incurred only if paid within the MSMED Act time limit. If not, the deduction shifts to the year of actual payment.

The goal is to protect small suppliers' cashflow by giving large and small buyers a tax reason to pay them quickly.

What are the 15-day and 45-day timelines?

The clock comes from Section 15 of the MSMED Act, 2006, and depends on whether you have a written agreement with the supplier:

So 45 days is a ceiling, not a default. Without a written agreement, the limit is 15 days.

Two clocks run here — they are distinct, and confusing them is a common mistake:

The deemed-acceptance period simply determines when acceptance is established. The 15/45-day payment window then runs from that acceptance date. The two "15 days" are legally separate; the payment deadline does not start to run until acceptance (or deemed acceptance) occurs.

Fact box. The MSMED Act payment limit is 15 days where there is no written agreement and a maximum of 45 days where there is one — the buyer cannot contract for a longer period than 45 days. (Source: MSMED Act 2006, Section 15.)

Who does Section 43B(h) apply to?

It applies to you, the buyer, when your supplier is a Micro or Small enterprise — but the scope is narrower than most people assume:

• Only Micro and Small enterprises. Medium enterprises are excluded from the Section 15 / 43B(h) protection.
• Supplier must hold Udyam registration. An unregistered Micro/Small enterprise is not covered — no Udyam, no 43B(h).
• Traders are excluded. Only manufacturing and service MSEs get Section 15 protection. A Udyam certificate showing "trading" activity does not trigger 43B(h).

Under the classification effective 1 April 2025, the limits are:

Practical step: ask each supplier for their Udyam registration number and enterprise category (Micro/Small/Medium) and the activity (manufacturer/service/trader). That single data point tells you whether 43B(h) applies to that vendor.

What happens if I pay late? (the cost)

Two separate consequences stack on a late payment to a Micro/Small supplier:

1. Income-tax disallowance (Section 43B(h)). If the bill is unpaid beyond the 15/45-day window at the financial year-end (31 March), the expense is added back to your taxable profit for that year. You get the deduction only in the later year you actually pay — meaning you pay extra income tax now and recover the benefit later.
2. MSMED Act interest (Section 16). Delayed payment attracts compound interest, compounded monthly, at three times the RBI bank rate. This interest is payable to the supplier and is itself not deductible as an expense (MSMED Act, Section 23).

So a delayed payment can cost you the timing of the deduction and a steep, non-deductible interest charge.

⚠️ Year-end is the trigger. The prevailing position among practitioners — consistent with the plain language of Section 43B(h) and the settled CA view — is that the disallowance bites only on amounts still unpaid as on 31 March. A bill that was paid late but within the same financial year (i.e. before 31 March) is allowed as a deduction in that year; the tax penalty applies only where the amount remains outstanding at year-end. The MSMED Act interest (Section 16), however, accrues from the day payment fell due — it is not capped to year-end. Consult your CA for the specific treatment in your return.

How do I build a Section 43B(h) tracker in Excel?

A payables tracker with a few extra MSME columns turns this from an anxiety into a routine. Here's the method:

1. List every purchase bill in one sheet: Vendor, Bill No., Bill Date, Amount, Paid, Balance (= Amount − Paid).
2. Add MSME columns: Udyam No., Category (Micro/Small/Medium/Not registered), Activity (Mfg/Service/Trader), and Agreement? (Yes/No).
3. Flag whether 43B(h) applies with a formula, e.g. =IF(AND(OR(Category="Micro",Category="Small"),Activity<>"Trader",Udyam<>""),"YES","NO")
4. Set the deadline: Limit days = IF(Agreement="Yes",45,15) then Pay-by date = Bill Date + Limit days.
5. Count down: Days left = Pay-by date − TODAY(). Use conditional formatting — red if Days left < 0 (overdue), amber if 0–5, green otherwise — but only for rows where 43B(h) = YES.
6. Add a year-end watch: a column flagging any 43B(h)=YES bill still unpaid where Bill Date is in the current FY and the pay-by date has passed — these are your disallowance risks.

The base payables layout (columns, totals, ageing) is covered in the Accounts Payable Tracker guide; this tracker just adds the MSME logic on top. A free, ready-made 43B(h) tracker workbook is available to download, no sign-up.

How Ankeshan helps: Ankeshan checks each vendor's Udyam status, applies the 15/45-day rule automatically, and warns you inside Excel before a Micro/Small bill crosses its deadline — and before year-end disallowance can hit. It's launching soon; join the waitlist.

Frequently asked questions

Does Section 43B(h) apply to Medium enterprises? No. Only Micro and Small enterprises are covered. Payments to Medium enterprises are not subject to the 43B(h) disallowance or the MSMED Act 15/45-day limit.

Does it apply if my supplier is a trader? No. Only manufacturing and service MSEs get Section 15 protection. A supplier whose Udyam registration shows "trading" activity does not trigger 43B(h), even if Micro or Small.

Is the limit 15 days or 45 days? 15 days if there is no written agreement. With a written agreement you can extend it, but never beyond 45 days. So 45 is the absolute maximum, not the default.

What if my supplier isn't Udyam-registered? Then 43B(h) does not apply to that supplier. The protection is tied to Udyam registration — an unregistered Micro/Small enterprise is outside its scope.

Is the interest on delayed MSME payment tax-deductible? No. The MSMED Act interest (three times the RBI bank rate, compounded monthly) is payable to the supplier and is not allowed as a deduction in your income tax.

From which year does Section 43B(h) apply? It was inserted by the Finance Act 2023 and is effective from 1 April 2024 (AY 2024-25) — so it applies to FY 2024-25 onward, including FY 2025-26 and FY 2026-27.

Sources

• Income Tax Act, 1961 — Section 43B(h) (inserted by Finance Act 2023): incometax.gov.in.
• MSMED Act, 2006 — Sections 15, 16 and 23 (payment timelines and interest): msme.gov.in.
• Ministry of MSME — revised classification effective 1 April 2025 and Udyam registration: udyamregistration.gov.in.

General information, not professional advice. Verify on the official portal for your case. Reviewed by a Chartered Accountant; last updated 27 June 2026.

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