Section 43B(h) for Buyers: The Deduction You Lose by Paying Late

What the clause does

Any sum payable to a micro or small enterprise beyond the time limit specified in Section 15 of the MSMED Act is allowed as a deduction only in the previous year in which the sum is actually paid.

The limit is forty-five days from acceptance where a written agreement fixes a payment date, and fifteen days where it does not. Exceed it and the expense leaves the current year entirely.

The proviso that does not apply

The first proviso to Section 43B allows a deduction where payment is made on or before the due date for filing the return under Section 139(1). For clauses (a) through (g) this is a familiar safety valve — pay by July and keep the March deduction.

It expressly does not extend to clause (h). A payment made on 30 April, after a 31 March year end and after the statutory limit, does not restore the deduction for the year just closed. It falls into the following year instead.

Who it catches and who it does not

1. Applies: payments to enterprises classified as micro or small, holding a valid Udyam registration on the date of supply.

2. Does not apply: medium enterprises, unregistered suppliers, and traders.

3. Does not apply: amounts not claimed as deduction, such as capital expenditure, though the MSMED interest provisions still run.

The supplier's classification on the date of the transaction is what matters, which is why the Udyam number belongs in the vendor master rather than being collected at year end.

What it costs

Take a company at the twenty-five per cent corporate rate with one crore rupees of unpaid micro and small dues at 31 March, all beyond the limit. The deduction shifts to the following year, so twenty-five lakh rupees of tax moves forward a year. On top sits the Section 16 interest at three times the bank rate, compounded monthly, which is itself disallowed under Section 23.

The combination is why the clause changed payment behaviour faster than almost any other recent amendment.

What to do before 31 March

Pull the ageing of payables filtered to micro and small vendors. Identify everything past its appointed day. Pay what you can before the year closes — payment before 31 March preserves the deduction entirely. Disclose the balance under Section 22 in the financial statements, and reconcile the interest accrued.

The exercise is far easier if the vendor master already carries Udyam numbers and the ageing report can filter on them, which is the real preparation.

Frequently asked questions

### Does paying before filing the ITR save the deduction under 43B(h)?

No. The first proviso to Section 43B, which allows deduction where payment is made before the Section 139(1) due date, does not extend to clause (h). Payment after 31 March moves the deduction to the following year regardless of when the return is filed.

### Does 43B(h) apply to medium enterprises?

No. The clause applies only to amounts payable to micro and small enterprises. Medium enterprises are outside it, though the MSMED Act's own payment and interest provisions operate on a different basis.

### What if the supplier registered on Udyam after the supply?

The protection attaches by reference to the supplier's status at the time of the transaction. A certificate obtained afterwards does not retrospectively create the obligation, which is why collecting the Udyam number at onboarding matters.

### Is the interest paid under Section 16 deductible?

No. Section 23 of the MSMED Act expressly disallows interest paid or payable under Section 16 as a business expense. Paying late therefore costs the interest, the deduction on the principal, and the deduction on the interest.