Navigating Section 43B(h): A New Era for MSME Payments in India

The recent introduction of Section 43B(h) in the Income Tax Act marks a significant shift in the compliance landscape for Indian businesses dealing with Micro and Small Enterprises (MSMEs).

This amendment, effective from April 1, 2023, aims to solve a perennial problem: the delayed payment cycle that stifles Micro and Small Enterprises (MSMEs).

The 45-Day Mandate

The crux of the matter lies in timing. Under the new regime, any sum payable by an assessee to a registered MSME must be cleared within the time limit specified in Section 15 of the MSMED Act, 2006. If no agreement exists, this is 15 days; if an agreement exists, it cannot exceed 45 days.

Failure to comply results in the expense being disallowed for that year and allowed only in the year of actual payment. This creates a permanent difference where the assessee loses the deduction forever.

What This Means for Your Business

If your organization sources goods or services from MSME-registered vendors, you must now track these payments separately. Your accounting software should flag any MSME invoices approaching the 45-day threshold and prioritize them for processing.

Non-compliance is expensive — the disallowed expense is permanently lost, increasing your tax liability for the year. This is not a deferral; it is a forfeiture.

How ComplianceOS Handles This

Our platform automatically flags MSME invoices and tracks payment timelines against the statutory deadline. You receive proactive notifications at 30 days, 40 days, and finally at 44 days, ensuring you never miss a deadline inadvertently.