31 October 2026 • 6 min read
Checked 31 October 2026 against the sources listed at the end. Points that rest only on commentary are labelled.
The Finance Act 2023 added a new clause (h) to section 43B of the Income-tax Act, 1961. CBDT Circular 1/2024, dated 23 January 2024, explains it. A sum payable to a micro or small enterprise beyond the time limit in section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is allowed as a deduction "only on actual payment".
The circular adds that the usual proviso to section 43B does not apply to these payments. For most other items in section 43B, paying before the due date of your return saves the deduction for the earlier year. For clause (h) it does not.
The circular says the change applies from assessment year 2024-25. That is the financial year ended 31 March 2024 and every year after it.
The Income-tax Act, 2025 repeats the rule in section 37(2)(g). It covers an "amount payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15". A written Rajya Sabha reply from the Minister of State for Finance on 21 July 2026 says section 37(2)(g) corresponds to section 43B(h). The 2025 Act, as published, says it comes into force on 1 April 2026. Ask your CA which Act governs a given year.
We could not open the official text of clause (h) on the Income Tax Department or India Code sites. The wording above comes from the circular, the Minister's reply and the 2025 Act.
Section 15 of the MSMED Act sets the time limit that clause (h) borrows.
Acceptance has a precise meaning in section 2(b). The day of acceptance is the day goods are actually delivered or services rendered. If the buyer objects in writing within 15 days of delivery, it is the day the supplier removes the objection. If the buyer raises no written objection within 15 days, the day of deemed acceptance is the delivery day itself.
The Act says "in writing". One commentary argues that purchase order or invoice terms listing a due date could count as an agreement. We found no ruling on it.
Micro or small only. Section 2(n) defines "supplier" as a micro or small enterprise that has filed a memorandum with the authority under section 8(1). Medium enterprises are outside it.
Size limits changed on 1 April 2025. The Ministry of MSME's annual report for 2025-26 says a notification of 21 March 2025 revised the limits from that date:
| Investment in plant, machinery or equipment | Turnover | |
|---|---|---|
| Micro | up to ₹2.5 crore | up to ₹10 crore |
| Small | up to ₹25 crore | up to ₹100 crore |
| Medium | up to ₹125 crore | up to ₹500 crore |
The earlier limits were ₹1 crore and ₹5 crore for micro, and ₹10 crore and ₹50 crore for small, according to the Budget 2025-26 table published by the Press Information Bureau. Which set of limits applies to a supply made before 1 April 2025 is a question for your CA.
Registration. Commentary from Taxmann reads "filed a memorandum" as Udyam registration, and concludes that section 15 cannot be invoked against a supplier with no registration. It also says the rule does not reach supplies made before the supplier registered. These are commentators' readings, not court rulings. Check each supplier's Udyam certificate.
Traders. An RBI circular says the Ministry of MSME decided on 2 July 2021 to include retail and wholesale trade (NIC codes 45, 46 and 47) as MSMEs "for the limited purpose of Priority Sector Lending". Taxmann quotes a later Ministry memorandum, dated 1 September 2021, that excludes the delayed-payment provisions for those units, and concludes that a supplier whose certificate shows only trading is not a "supplier" under section 15. We could not open that memorandum, and we found no ruling. Treat dues to traders as an open question for your CA.
Tax. A sum unpaid at the year end and past the section 15 limit is not deductible that year. It is deductible in the year you pay it, according to Taxmann's commentary. Example, using our own numbers: you owe ₹10,00,000 on goods accepted on 1 February 2026 under a 45-day written agreement. The limit runs out in mid-March 2026. If the money is still unpaid on 31 March 2026, the ₹10,00,000 is not deductible for 2025-26. If you pay it on 10 April 2026, it is deductible for 2026-27.
Interest. Section 16 says a buyer who misses the section 15 deadline owes the supplier compound interest with monthly rests at three times the bank rate notified by the Reserve Bank. It applies "notwithstanding anything contained in any agreement". Section 23 says this interest cannot be deducted when computing income under the Income-tax Act, 1961.
Tax audit. Form 3CD is the tax audit report. A March 2024 corrigendum, as reported by Taxmann, amended clause 22 so that it covers "any other amount not allowable under clause (h) of section 43B". Taxmann adds that the auditor reports the total only, with no breakdown by supplier. We did not read the official notification. Use the current version of the form.
Taxmann's commentary says no: the money is paid in the same year, so it is not outstanding at year end. Section 16 interest still applies to the delay. The circular does not address this case directly, so confirm it with your CA.
Not for clause (h). Circular 1/2024 says the proviso to section 43B does not apply to these payments.
No. Section 2(n) defines a supplier as a micro or small enterprise, and the Minister's reply describes the rule as applying to micro or small enterprises.
It is unsettled. The RBI circular includes retail and wholesale traders as MSMEs only for priority sector lending. Taxmann quotes a Ministry memorandum that excludes delayed-payment rights for them. We could not read the memorandum, so ask your CA.
The Act says the period agreed in writing shall in no case exceed 45 days. Taxmann's worked table caps the due date at 45 days even where the contract says 60. Do not rely on a longer term.
Where an official site refused us, the link is to a copy of the document or a text mirror, as labelled.
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