Section 43B(h) MSME Payment Disallowance — Complete Guide with Emerging Case Laws, Practical Strategy & AY 2024-25 Litigation Alert

Relevant Sections & Provisions

• Section 43B(h) — Deduction only on actual payment to Micro or Small Enterprises within prescribed time limits (inserted by Finance Act 2023, w.e.f. AY 2024-25)
• Section 15 of MSMED Act, 2006 — Buyer’s obligation to make payment within agreed period or 15/45 days
• Section 16 of MSMED Act, 2006 — Interest on delayed payment (compound interest at 3x bank rate)
• Section 43B (main provision) — Certain deductions allowable only on actual payment basis
• Section 36(1)(iii) — Interest on borrowed capital (interaction with MSME interest)
• Section 37(1) — General deduction for business expenditure
• Section 44AB — Tax audit requirement (auditor’s duty to report MSME payment defaults)
• Clause 26 of Form 3CD — Tax audit report disclosure for Section 43B items

Case Name with Citation

Since Section 43B(h) became operative only from AY 2024-25, dedicated case laws are just beginning to emerge. This article addresses the provision comprehensively with reference to: