Introduction

A recent amendment under Section 43B(h) has significantly impacted businesses dealing with MSME suppliers.

If payment to a registered MSME supplier is not made within the prescribed time limit:

👉 The expense is disallowed in the same financial year, even if booked in accounts.

This directly increases taxable profit.

📋Key Provisions You Must Know

✔ Applicable only to MSME registered suppliers
✔ Applies to revenue expenditure (not capital expenditure)
✔ Deduction allowed only on actual payment basis if delayed

Payment Timeline Rules

Situation

Payment Due Within

No written agreement

15 days

Written agreement exists

45 days (maximum allowed under MSME Act)

If payment exceeds the above limits:

❌ Expense is disallowed in that year
✔ Deduction allowed only in the year of actual payment

📋Practical Impact Example

If ₹40 lakh is payable to an MSME supplier and not paid within the allowed time:

• ₹40 lakh expense disallowed
• Taxable profit increases
• Higher income tax liability
• Cash flow pressure due to additional tax

This can significantly impact year-end tax planning.

📋What Businesses Should Do Immediately

✅ Obtain MSME declaration from all vendors
✅ Update vendor master with MSME status
✅ Track creditor aging regularly
✅ Plan cash flow considering 15/45 day limits
✅ Reconcile outstanding balances before year-end

Proactive monitoring prevents unnecessary tax burden.