When does section 43B(h) disallow an MSME payment?
What Section 43B(h) does to payments owed to micro and small enterprises, the 15 and 45 day limits that decide the deduction year, and how to confirm the current position through CBDT and the MSME framework.
In this guide
Section 43B(h) of the Income-tax Act allows a deduction for an amount payable to a micro or small enterprise only in the year it is actually paid, unless payment is made within the MSMED Act window. That window is 15 days with no written agreement, and up to 45 days where a written agreement fixes a longer period. A late payment moves the deduction to the year of actual payment.
What does section 43B(h) disallow?
Section 43B of the Income-tax Act lists expenses that are deductible only in the year they are actually paid, no matter which year they were booked. Clause (h) added amounts owed to micro and small enterprises to that list, with one carve-out: if the buyer pays within the time limit set by the MSMED Act, 2006, the normal accrual deduction still stands.
The effect is narrow but sharp. Miss the MSMED time limit and the deduction for that purchase is pushed out of the year it was booked and into the year the payment is actually made. For a payment that slips across a year end, that can move a genuine business expense into the next assessment year.
Who does section 43B(h) catch?
Section 43B(h) applies to a buyer claiming a deduction for goods or services bought from an enterprise classified as micro or small under the MSMED Act, 2006. The buyer's own size is not the test. What matters is the supplier's registered status and whether the amount is still unpaid past the limit.
Because the trigger sits with the supplier's classification, the practical work is on the buyer's side: identify which vendors are registered micro or small enterprises, and track the acceptance date that starts the clock.
How long is the MSMED payment window?
Section 15 of the MSMED Act, 2006 sets the payment window that section 43B(h) borrows. The window depends on whether the parties have a written agreement fixing a credit period.
| Situation | Payment window |
|---|---|
| No written agreement | 15 days from acceptance or deemed acceptance of the goods or services. |
| Written agreement | The period fixed in the agreement, capped at 45 days from acceptance. |
| Beyond the window | Deduction allowed only in the year the amount is actually paid. |
Can a written agreement stretch the window past 45 days?
No. Section 15 of the MSMED Act, 2006 caps the agreed credit period at 45 days from acceptance. A clause that says 60 or 90 days does not keep the section 43B(h) deduction in the year of booking once day 45 has passed.
Does the clock start on the invoice date?
No. The MSMED Act starts the count from acceptance or deemed acceptance of the goods or services, not from the invoice date. Read the Act and current CBDT guidance for the definition of acceptance.
When does the 43B(h) deduction shift?
When a covered payment is not made inside the window, the expense is not lost. It is deferred. Section 43B(h) allows the deduction in the financial year in which the payment is actually made, so the timing of cash movement drives the timing of the deduction.
What happens to an unpaid 31 March MSME balance?
An amount still unpaid at year end that has missed the 15-day or 45-day window raises taxable profit for that year. The deduction is picked up later when the supplier is finally paid. Planning the payment run before year end is what keeps the deduction in the year the cost was incurred.
What sits outside section 43B(h)?
Section 43B(h) is tied to micro and small enterprises. Amounts owed to a supplier that is not registered as micro or small, or that falls in the medium category, are not caught by this specific clause. Purchases of goods for resale versus other expenses can also raise questions that turn on the exact wording.
Because the boundaries are read from both the Income-tax Act and the MSMED Act, 2006, the safe course is to confirm each supplier's status rather than assume a whole ledger is either in or out.
How do I confirm section 43B(h) today?
- Read Section 43B and clause (h) in the Income-tax Act on the department site.
- Check the CBDT circulars for any clarification on scope and acceptance.
- Confirm each supplier's micro or small classification for the relevant period.
- Track the acceptance date and the applicable 15 or 45 day window per invoice.
- Save the source law and any circular with the working papers.
Why do 43B(h) year-end deductions fail?
- Assuming a written agreement can push the window beyond 45 days.
- Counting from the invoice date instead of the acceptance date.
- Applying the rule to medium enterprises or unregistered suppliers.
- Missing that an unpaid year-end balance defers the deduction to the next year.
- Relying on an old note after a CBDT clarification changed the reading.
Where are 43B(h) clarifications published?
The scope of section 43B(h) and the acceptance mechanics move through CBDT clarification and the MSMED framework. Complied AI keeps CBDT updates in one feed so you can open the source document behind a change instead of relying on an old year-end note.
Practical checks
Common questions
What is Section 43B(h)?
Section 43B(h) of the Income-tax Act ties the deduction for a payment owed to a micro or small enterprise to actual payment, unless the payment is made within the time limit under the Micro, Small and Medium Enterprises Development Act, 2006. If that limit is missed, the deduction is allowed only in the year the amount is actually paid.
Is the MSME payment limit 15 days or 45 days?
It depends on whether there is a written agreement. Section 15 of the MSMED Act, 2006 sets 15 days from acceptance or deemed acceptance where there is no written agreement. Where a written agreement fixes a longer credit period, that period applies, capped at 45 days. A written agreement cannot stretch the window past 45 days for section 43B(h).
Does 43B(h) apply to medium enterprises?
No. Section 43B(h) of the Income-tax Act is linked to amounts payable to micro and small enterprises as classified under the MSMED Act, 2006. Medium enterprises are not covered by this specific clause. Confirm the supplier's registered classification for the relevant period before deciding whether the clause applies.
Does the supplier need to be registered as an MSME?
Yes, in the usual reading. Section 43B(h) follows the MSMED Act, 2006 classification of micro and small enterprises, which is generally taken to mean a supplier registered under that framework. The buyer should confirm the supplier's status for the period, not assume a whole ledger is in or out.
Our MSME supplier was unpaid for 50 days at year end. Do we lose the deduction?
No, the deduction is deferred, not lost. Section 43B(h) of the Income-tax Act allows the expense in the financial year the amount is actually paid. A 50-day unpaid balance at 31 March that missed the 15-day or 45-day MSMED window raises taxable profit this year and picks the deduction up when the supplier is paid.
Does the 43B(h) clock start from the invoice date?
No. Section 15 of the MSMED Act, 2006 starts the 15-day or 45-day window from acceptance or deemed acceptance of the goods or services, not from the invoice date. Counting from the invoice date is how a buyer misreads a year-end unpaid balance as still inside the window.
Does paying MSME-1 interest fix the 43B(h) disallowance?
No. Section 16 of the MSMED Act, 2006 charges compound interest on an amount unpaid past the section 15 period, and that interest is a separate liability. Section 43B(h) of the Income-tax Act still defers the purchase deduction to the year of actual payment. Filing MSME-1 or paying that interest does not restore this year's deduction.
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How this guide was prepared
This guide is published by the Complied AI research desk. Its source list and stated position were checked against the official records shown below on 24 August 2026.
Automation, including AI, may assist research, drafting and structure. It does not replace the official record or amount to an independent professional review. Read our editorial standards and corrections policy.
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