MSME 45-Day Payment Rule: How Section 43B(h) Forces Buyers to Pay You

Section 43B(h) was inserted into the Income Tax Act by the Finance Act 2023 and applies from FY 2023-24. It says that any sum payable to a micro or small enterprise is allowed as a tax deduction only in the year it is actually paid, if the payment was not made within the time limit set by Section 15 of the MSMED Act.

Section 15 of MSMED Act sets that limit at 45 days from the day the buyer accepts the goods or services. If there is a written contract specifying a different period, the lower of 45 days and the contractual period applies.

The clean reading for a buyer: pay your MSME supplier within 45 days, or you cannot claim the cost in this year's tax return. The cost is held back until the year of actual payment, which can mean a real tax outflow this year on cash you have not parted with.

The clock starts on the date the buyer accepts the goods or services in writing. Acceptance happens implicitly if no objection is raised within 15 days of delivery. So in practice, the buyer who stays silent for 15 days has implicitly accepted, and the 45-day clock begins on the 16th day after delivery.

A buyer who raises a written objection within 15 days resets the clock. The clock restarts only after the dispute is resolved and acceptance is recorded. This is the loophole sophisticated buyers use to delay. The supplier needs to push for a written resolution quickly so the clock starts ticking again.

MSMED Act had a 45-day rule on paper since 2006. The rule was largely ignored because the only enforcement was the Samadhaan portal, which most suppliers were reluctant to use against an ongoing buyer relationship.

43B(h) shifted the cost to the buyer's tax return, where their own CA flags it during audit. The buyer cannot quietly let the invoice age beyond 45 days without internal noise. The CA tells the buyer to either pay or carry the disallowance into the tax computation. For most mid-market buyers, paying is cheaper than losing the deduction.

The result on the ground is that supplier payment cycles in MSME-buyer relationships have tightened significantly since FY 2024-25. Suppliers who quote 43B(h) in collection emails get paid faster, often without any escalation.

When the buyer still does not pay despite the 43B(h) reminder, the supplier files a Samadhaan complaint at samadhaan.msme.gov.in. The portal asks for Udyam URN, buyer details, invoice copies, proof of delivery, and the contract or PO.

The complaint goes to the Micro and Small Enterprises Facilitation Council (MSEFC) of the buyer's state. The MSEFC notifies the buyer within 15 days and asks for a written response. A conciliation hearing is scheduled, usually within 45 days of complaint filing.

If conciliation fails, the MSEFC moves into arbitration mode, which is binding. The buyer is liable for the principal plus interest at three times the bank rate of the day, compounded monthly. The interest piece alone is steep enough that most buyers settle at the conciliation stage.

Udyam Registration Number (URN) and the certificate PDF. The complaint goes nowhere without Udyam. The buyer can argue you are not a registered MSME and the case dies.

The signed purchase order or contract, if one exists. Email confirmations and WhatsApp screenshots count as supporting evidence but a signed PO is best.

Invoice copies, with delivery acknowledgement. A signed delivery challan, an emailed acceptance, or a goods receipt note from the buyer all work.

A statement of payments received and outstanding, with dates. The portal does not let you upload more than 10 invoices in one complaint, so for many outstanding bills file multiple complaints in batches.

The buyer's statutory auditor is required to disclose in the audit report any sum payable to MSME suppliers beyond 45 days. The disclosure shows up as a separate line in the tax audit report (Form 3CD) and the company's financial statements.

For a private company, the disclosure is visible to lenders, investors, and the Registrar of Companies. For a public company, it is visible to everyone. CFOs treat this as a small but real reputational cost and prefer to clear MSME bills first.

Suppliers who casually mention "Section 43B(h)" in a polite follow-up email to the buyer's accounts team often see invoices clear within a week. The internal note in the buyer's ERP changes the priority of the invoice.

MSMED Act mandates interest at three times the bank rate, compounded monthly, on any delayed payment beyond 45 days. The current bank rate is around 6.75 percent, so the interest accrual is roughly 20 percent per annum compounded.

The interest accrues automatically. The supplier does not need a court order or a contract clause. The buyer's books carry the liability, which the auditor again flags. Most buyers do not actually pay the interest and most suppliers do not push for it. The threat of the interest accrual is what gets the principal paid.