Income tax deduction only when micro and small suppliers are paid on time (Section 43B(h), now section 37(2)(g)) Section 43B(h)
A business buyer cannot claim a tax deduction for money owed to a micro or small supplier until it actually pays, if it pays later than the MSMED Act time limit, which pushes buyers to pay on time.
Last updated on
- Status
- Open
- Run by
- Central Board of Direct Taxes, Ministry of Finance
What you get
- Gives micro and small suppliers leverage, because a buyer that pays after 45 days, or after 15 days with no written agreement, loses the deduction for that year
- The deduction is allowed only in the year the payment is actually made, and paying before the return due date does not save it
Who can apply
- Businesses that are already running.
- Open to businesses in manufacturing and services.
- Micro and small enterprises.
- Udyam registration is needed. It is free.
- Protects suppliers that are registered micro or small enterprises. Medium enterprises are not covered.
- Applies to buyers' income tax, so it matters most when the buyer is a business that files accounts
Figures you may see elsewhere
One secondary site calls the MSME item clause (h) of section 37(2). Most sources, quoting the statute, put it at clause (g).
Worth knowing
Brought in by the Finance Act 2023 from assessment year 2024-25 as Section 43B(h) of the Income-tax Act 1961. From tax year 2026-27 the Income-tax Act 2025 applies, where the same rule is reported to sit in section 37(2)(g).
Where we found this
- Budget Speech 2023-24, annex item on timely payments to micro and small enterprises (external site) Official announcement
- PIB, outstanding payments to MSMEs, July 2023 (external site) Official announcement
- TaxGuru, Section 37 of the Income-tax Act 2025, earlier Section 43B (external site) Other source
An independent guide by The Company of Four, not a government website. Schemes change often, so check every detail on the official website before you apply. Links marked ↗ open external websites that we do not run, and we are not responsible for their content. Seen something out of date? Tell us and we will look into it.