The rule in plain words
A business normally claims a purchase as an expense in the year it books the bill. This rule changes that for bills from micro and small enterprises: if the buyer pays after the time limit in section 15 of the MSMED Act, they can claim the expense only in the tax year in which they actually pay.
The expense is not lost. It moves to the year of payment. But if a bill is past its time limit and still unpaid at year end, the buyer’s taxable profit for that year goes up.
Where the rule lives now
The rule was added to the Income-tax Act, 1961 as section 43B(h). The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, and the same rule is now section 37(2)(g): an amount payable to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act is allowed only in the tax year it is paid.
Most people still call it 43B(h), so this guide does too.
Who it covers
- Covered: suppliers that are micro or small enterprises registered on Udyam.
- Not covered: medium enterprises. The section names only micro and small.
- Traders: the Ministry of MSME has said that wholesale and retail traders registered on Udyam get priority sector lending only, and the MSMED Act’s delayed payment provisions do not apply to them (memorandum of 1 September 2021). Because the tax rule borrows the Act’s time limit, tax guides such as ClearTax treat dues to traders as outside it. If you both make goods and trade, ask your CA how your bills are seen.
15 days or 45 days
| Your arrangement with the buyer | The buyer must pay within |
|---|---|
| No written agreement on payment days | 15 days from acceptance |
| A written agreement of up to 45 days | the agreed days |
| A written agreement of more than 45 days | 45 days from acceptance (the law caps it) |
Acceptance is normally the day the goods or service were delivered. If the buyer objects in writing within 15 days, it is the day the objection is resolved. Find the last day for any bill on the 45-day rule checker.
What happens at year end
The rule matters most when a late bill is still unpaid as the buyer’s year closes:
- Paid late, but in the same financial year: the buyer still claims the expense that year.
- Past the time limit and still unpaid on 31 March: the buyer cannot claim it that year. It moves to the year they pay.
So February and March are a sensible time for a polite reminder: paying before 31 March keeps the expense in the buyer’s current year.
Separately, a buyer who pays late owes you interest under section 16 of the MSMED Act. See what it comes to on the MSME interest calculator.
How to mention it in a reminder
Mention it as useful information, once, and politely. It should help the buyer’s accounts team, not pressure them. Never phrase it as a threat, and never suggest you will report them.
An example (the name, bill and figures are example figures):
Namaste Mr Shah, a reminder that bill INV-245 for ₹84,500 was due on 15 March. We are a micro enterprise registered on Udyam, so paying before 31 March also lets you claim this bill as an expense this year. Thank you, Patil Engineering
A few tips:
- Mention it only if you are a micro or small enterprise registered on Udyam.
- Send your Udyam certificate to the buyer’s accounts team once, so they know which bills the rule covers.
- Keep everything else in the reminder the same: bill number, amount, due date and how to pay. How to write a payment reminder lists what it needs, and our polite reminder messages are ready to send.