MSME 45-Day Payment Rule: What Buyers and Sellers Must Know

Every March, finance teams across the country get the same unwelcome note from their auditors: unpaid bills to small suppliers, however routine, are being added back to taxable income. A company that owes a small vendor ₹20 lakh at year-end is not just late on a payment — it is looking at ₹20 lakh added straight to its taxable profit for that year, on top of the amount it still owes. This is Section 43B(h) at work, and it changes the practical leverage between buyers and their MSME vendors in ways both sides should understand well before year-end closing, not after.

What Section 43B(h) actually does

Section 43B has long worked on a cash basis for a specific list of expenses — certain statutory dues are only deductible in the year you actually pay them, even if you booked them earlier on accrual. Clause (h), effective from FY 2023-24, extends this same treatment to amounts owed to micro and small enterprises: if a buyer has not paid a registered micro or small supplier within the timeline the MSMED Act allows, that unpaid amount cannot be deducted as an expense in the year it was booked. The detail that catches most finance teams out is that the usual escape hatch does not apply here — for most other items under Section 43B, paying before the due date for filing your tax return still saves the deduction for the earlier year. That relief is explicitly switched off for clause (h). If the supplier is still unpaid at the close of the financial year, the deduction is deferred to whichever later year you actually pay, full stop. This is a purely mechanical rule with no room for discretion — it does not matter whether the delay was a genuine cash crunch, a disputed invoice, or simple oversight in the accounts payable process; the disallowance applies the same way regardless of the reason behind it.

The 45-day ceiling most people misunderstand

The default assumption is that every payment to an MSME automatically gets 45 days. That is not quite right. Under the MSMED Act, if there is no written agreement between buyer and seller, payment is due within 15 days of the buyer accepting the goods or service. A written agreement can extend this, but only up to a hard ceiling of 45 days from acceptance — buyers and sellers cannot contractually agree to 60 or 90 days and expect that to hold up for this purpose. So the date that matters is not the invoice date, it is the acceptance date, and the deadline counted from there is either 15 or 45 days, never more. It is also worth noting that the clock starts from acceptance, not from whenever the invoice happens to be raised, so a supplier that delivers goods in February but invoices only in April has not bought the buyer any extra time — the 15- or 45-day countdown was already running from February.

How MSME sellers should use this as real leverage

• State your Udyam registration number clearly on every invoice and purchase order acknowledgment — a buyer cannot apply the right payment rule to a supplier it cannot identify as MSME, and many larger buyers now run this check automatically in their vendor master before an invoice is even processed.
• Push for a written agreement, but go in understanding it cannot legally extend your payment date beyond 45 days from acceptance — treat that ceiling as the anchor in the negotiation, not a starting point to bargain down from, since a 60-day clause is not enforceable against you for this purpose in the first place.
• Time follow-ups around the buyer's financial year-end: dues still outstanding on 31 March create the buyer's sharpest tax exposure, so late March and early April is when this leverage is strongest, and a reminder sent in that window often gets a faster response than the same reminder in June.
• Keep the compounding interest provision in view — delayed payments attract interest at three times the RBI-notified rate, compounding monthly, and it is explicitly not deductible for the buyer, which adds to their incentive to clear dues rather than let interest pile up, especially across a large vendor base.
• If informal follow-up does not work, the MSME Samadhaan portal exists specifically for registered MSMEs to file delayed-payment complaints against buyers, and simply having a credible escalation path is itself useful leverage in a conversation, even before a complaint is actually filed.

What buyers should do to stay ahead of this

The practical fix is not complicated, but it does mean treating MSME vendors differently from the rest of accounts payable. Buyers should identify which vendors are Udyam-registered as micro or small, since medium enterprises and unregistered vendors fall outside this particular rule, track acceptance dates rather than invoice dates, and reconcile MSME payables specifically before the books close for the year rather than after. Standard 60- or 90-day terms, if applied by default to MSME vendors the way they might be applied to everyone else, simply do not hold up for this purpose. It helps to build a flag into the accounting system itself, so a vendor tagged as Udyam micro or small automatically triggers a shorter default payment term, rather than relying on someone in the finance team to remember the exception during a busy month-end close.

Section 43B(h) turns a supplier-relations issue into a tax-computation issue, which is exactly why it changes behaviour faster than the MSMED Act's payment rules managed on their own. Buyers who fold MSME payment tracking into their normal closing process avoid an unpleasant year-end surprise, and sellers who understand the mechanic have a genuinely stronger hand than they had before. For a provision that amounts to little more than a handful of extra words in Section 43B, it has done more to speed up payments to small suppliers than a decade of the MSMED Act's own enforcement machinery managed on its own.