Section 43B(h): The MSME Payment Rule Every Buyer Must Know

Section 43B(h), effective from FY 2023-24, is one of the more consequential recent changes for any business that buys from small vendors — and one of the least understood.

What It Actually Says

If you buy goods or services from a supplier registered as a Micro or Small Enterprise under the MSMED Act, and you don't pay them within the timeline agreed in writing (or 45 days if there's no written agreement), the expense is disallowed for income tax purposes in the year it was incurred — deductible only in the year you actually pay.

Why It Catches Businesses Off Guard

Many buyers don't actually know which of their vendors are MSME-registered, since there's no requirement for a supplier to announce it on every invoice. A business with a habit of 60–90 day payment cycles to vendors can suddenly find a meaningful chunk of expenses disallowed simply because the vendor happened to be Udyam-registered.

What to Do About It

Ask new vendors directly whether they hold Udyam registration, build the 45-day (or agreed) payment window into your accounts-payable process, and reconcile outstanding MSME dues before year-end closing — this single check has become one of the more valuable additions to a standard pre-filing review.

Note that this applies only to Micro and Small enterprises — Medium enterprises are excluded from this specific provision, so vendor classification matters, not just Udyam registration status.