Section 43B(h): why your buyers now want to pay MSMEs within 45 days

A tax rule that changed buyer behaviour

For years, the MSMED Act said buyers should pay micro and small suppliers within 45 days, yet many large buyers kept stretching payments to 90 or 120 days. The law had interest provisions, but few small suppliers enforced them.

The Finance Act 2023 approached the problem from a different side: the buyer's tax return. It inserted clause (h) into Section 43B of the Income-tax Act, 1961, applying from financial year 2023-24 (assessment year 2024-25) onwards (Memorandum explaining the Finance Bill, 2023).

The Income-tax Act, 1961 has since been replaced. The Income-tax Act, 2025, in force from 1 April 2026, carries the same rule forward as section 37(2)(g). People still call it "43B(h)", and we do too, but for tax years from 1 April 2026 the provision to cite is section 37(2)(g). A Rajya Sabha answer of 21 July 2026 described the provision as unchanged.

What the rule says, in plain words

Section 43B (now section 37(2) of the 2025 Act) lists certain expenses that a business can deduct only when it actually pays them, not when it books them. Clause (h), now clause (g), covers:

Any sum payable by the business to a micro or small enterprise beyond the time limit specified in Section 15 of the MSMED Act.

In practice:

• If the buyer pays within the MSMED Act time limit, it claims the expense normally, on accrual, in the year it is incurred.
• If the buyer pays after that limit, the deduction is allowed only in the year the payment is actually made.

The Finance Bill memorandum put it this way: the deduction is allowed "only on actual payment", and "can be allowed on accrual basis only if the payment is within the time mandated under section 15".

The MSMED Act time limit is the agreed credit period, which cannot exceed 45 days from acceptance of the goods or services, or 15 days if there is no written agreement. Our 45-day rule explainer has a worked example with dates.

Why year-end matters most

The rule bites hardest around 31 March. Consider a simple example.

In the late case, the buyer has booked the purchase in one year but can only deduct it in the next. For a buyer with many such unpaid invoices at year-end, that can mean a higher taxable profit for the year in which the goods were bought.

The usual relief in Section 43B, which lets some expenses be deducted if paid before the return filing due date, does not apply to this clause. The Finance Act 2023 expressly excluded clause (h) from that proviso, and section 37(3) of the 2025 Act keeps the relief "except the sum referred to in clause (g)".

Buyers on presumptive taxation

Buyers taxed on a presumptive basis (sections 44AD, 44ADA and 44AE of the 1961 Act; section 58 of the 2025 Act) are likely unaffected, because their profits are deemed and they do not claim purchases as separate deductions. This is an inference from the statute; there is no official clarification.

What this means for you as a supplier

You are not the one paying tax on this, but it changes the conversation. Your buyer's CA and accounts team now have a reason of their own to clear your invoices within the time limit. Your job is to make it easy for them to see that you qualify.

Get your Udyam registration in order

The rule only helps if you are a micro or small enterprise under the MSMED Act. Medium enterprises are outside it, and the Supreme Court has confirmed that the MSMED Act's "supplier" means only a micro or small enterprise (NBCC v. State of West Bengal, 10 January 2025). That means:

• A valid Udyam registration showing the category as micro or small. Register before you sell.
• Details that match your invoices: legal name, GSTIN and address.
• If you are registered as a retail or wholesale trader, do not count on it. The Ministry of MSME has restricted trader registrations to priority sector lending and excluded them from the MSMED Act's delayed-payment provisions (Ministry of MSME Office Memoranda dated 2 July 2021 and 1 September 2021). There is no CBDT clarification on 43B(h) for traders, but the majority professional view is that dues to traders (NIC codes 45 to 47) fall outside the rule. It remains unsettled, so do not cite it to buyers as if it applies.

Register or update your details on the Udyam portal. It is free to register on the official portal; avoid agents who charge to do it for you on look-alike websites.

Tell your buyers, clearly and early

Buyers cannot follow a rule they do not know applies. Simple steps:

1. Print it on the invoice

   Add your Udyam number and category, for example "Udyam No. UDYAM-XX-00-0000000, Micro Enterprise", and the credit period, such as "Payment due within 30 days of delivery as per MSMED Act".

2. Share the certificate with vendor onboarding

   Many larger buyers have a vendor master form with an MSME field. Make sure your status is recorded, and resend the certificate when it is updated.

3. Send a short note before March

   In February, a friendly message to the accounts team listing your open invoices helps them plan year-end payments.

How to raise 43B(h) politely

The rule is a fact, not a weapon. Bring it up the way a helpful supplier would:

"Sharing our open invoices for your year-end closing. As we are a registered micro enterprise, payment within the agreed terms may also help with your deduction under section 43B(h), now section 37(2)(g) of the Income-tax Act, 2025. Please let us know if you need our Udyam certificate again."

What to avoid:

• Implying you will "report" the buyer to the tax department. You have no role in their assessment, and it sounds like a threat.
• Lecturing their CA on tax law. Point to the rule and let their advisers decide.
• Using it in the very first reminder. Lead with the invoice and payment link; mention 43B(h) in a year-end note or a later, calm follow-up.

If you need a gentle reminder sequence, see our WhatsApp payment reminder templates.

Where 43B(h) fits with the MSMED Act

Section 43B(h) and its successor section 37(2)(g) do not replace the MSMED Act. The MSMED Act still gives eligible micro and small manufacturers and service providers the right to compound interest on delayed payments, and the option to approach the MSE Facilitation Council through the MSME ODR portal, which replaced MSME Samadhaan for new applications. Separately, Section 23 of the MSMED Act says that interest is not deductible for the buyer. The tax rule simply adds an incentive for the buyer to avoid getting there.

Udhaar Wapas adds your Udyam details to every reminder and letter so buyers' accounts teams see your status at a glance. Learn more about our approach on the compliance page.