Section 43B(h) of the Income-tax Act says that a buyer can deduct an amount owed to a micro or small enterprise only in the year it is actually paid, if it was not paid within the time limit in Section 15 of the MSMED Act: 15 days where there is no written agreement, or the agreed period up to a maximum of 45 days. If the buyer pays late, the expense is added back to their taxable income for the year of purchase and allowed only in the year of payment. The rule applies from financial year 2023-24.
What the rule says in plain language
Normally a business deducts a purchase as an expense in the year it is booked, even if the supplier is paid later. Section 43B(h), added by the Finance Act, 2023, creates an exception for dues to micro and small enterprises. If the buyer has not paid within the MSMED Act time limit, the deduction moves to the year in which the payment is actually made.
Unlike most other items in Section 43B, there is no relief for paying before the income-tax return due date. Only the Section 15 time limit matters.
The Income-tax Act, 2025 replaces the 1961 Act for tax years starting 1 April 2026. The same rule on payments to micro and small enterprises continues under the corresponding provision of the new Act, so the practical position described here still applies. People still commonly call it "43B(h)".
The time limits
| Situation | Time limit for payment |
|---|---|
| No written agreement on credit period | 15 days from acceptance of goods or services |
| Written agreement of up to 45 days | The agreed date |
| Written agreement of more than 45 days | 45 days from acceptance |
A worked example
A buyer accepts goods worth ₹10,00,000 from a small enterprise on 1 March, with a written 45-day credit period. The 45th day is 15 April.
- Paid on 10 April (within 45 days): the deduction is allowed in the year of purchase, even though the amount was unpaid on 31 March.
- Paid on 30 April (late): the ₹10,00,000 is disallowed in the year of purchase and allowed in the next year, when it was actually paid. The buyer pays tax on ₹10,00,000 of extra income this year.
- Invoice of 1 December, paid on 20 March (late, but within the same financial year): the deduction is allowed in that year because the payment was made in that year.
Who is covered
- Suppliers: micro and small enterprises as defined in the MSMED Act, in practice those with Udyam registration. Medium enterprises are not covered.
- Traders: retail and wholesale traders are given Udyam registration for priority sector lending only, so dues to pure traders are widely treated as outside this rule.
- Buyers: any business claiming the purchase or expense as a deduction. The buyer does not need to be an MSME.
If you are the supplier: how to use it to get paid faster
- Print your Udyam registration number and enterprise category on every invoice.
- Send your large buyers a short MSME declaration with your Udyam certificate once a year.
- Remind buyers in February and March that unpaid MSME dues beyond the limit will increase their tax bill.
- Agree credit terms in writing. Without a written agreement the limit is 15 days, not 45.
Section 43B(h) is a tax consequence for the buyer. It does not by itself put money in your account. If the buyer still does not pay, the recovery routes are a legal notice, MSME Samadhaan and, where needed, court or arbitration.
If you are the buyer: how to stay compliant
- Collect Udyam certificates from vendors and tag micro and small suppliers in your accounting software.
- Put credit terms of 45 days or less in writing with them.
- Run an ageing report of MSME payables before 31 March and clear what is past the limit.
- Remember that interest paid to an MSME for delay is not deductible either (Section 23 of the MSMED Act).
Frequently asked questions
From which year does Section 43B(h) apply?
It applies from financial year 2023-24 (assessment year 2024-25) onwards.
Does Section 43B(h) apply to medium enterprises?
No. It covers amounts payable to micro and small enterprises only.
What if the buyer pays late but before filing the income-tax return?
That does not help. For dues to micro and small enterprises the deduction is allowed in the year of purchase only if payment is made within the MSMED Act time limit; otherwise it is allowed in the year of actual payment.
Is the limit 45 days or 15 days?
It is 15 days from acceptance when there is no written agreement, and the agreed period, capped at 45 days, when there is one.
Does Section 43B(h) help me recover my money?
Indirectly. It gives buyers a tax reason to pay on time, but it is not a recovery mechanism. To recover unpaid dues you use a legal notice, MSME Samadhaan, or court or arbitration.
This guide is general information for Indian businesses, not legal advice for your specific case. Laws and rates change; check the current position or speak to an advocate before acting.
Related guides
Payment recovery in your city: Ahmedabad, Surat, Rajkot, Morbi, Vadodara, Mumbai, Pune, Nagpur, Delhi, Noida, Ghaziabad, Gurugram, Faridabad, Panipat, Ludhiana, Jaipur, Indore, Hyderabad, Bengaluru, Chennai, Coimbatore, Kolkata, Kanpur, Lucknow, Kochi, Patna