Section 43B(h): The Complete Professional Commentary
Section at a Glance
| Parameter | Details |
|---|---|
| Inserted by | Finance Act 2023 |
| Effective from | AY 2024-25 (FY 2023-24) |
| Applies to | Buyers making payments to Micro and Small Enterprises |
| Does NOT apply to | Medium enterprises |
| Payment deadline — with written agreement | Agreed period, subject to maximum 45 days |
| Payment deadline — without written agreement | 15 days from acceptance of goods/services |
| Consequence of delay | Amount not deductible in year of accrual; deductible only on actual payment |
| CBDT clarification | CBDT Circular No. 6/2024 dated 23.08.2024 |
| Form 3CD clause | Clause 26 — mandatory reporting by tax auditor |
| IT Act 2025 position | Section 43B(h) retained with same number |
The Context — Why This Section Was Inserted
India’s MSME sector has consistently struggled with delayed payments from larger buyers. Businesses — particularly micro and small enterprises — often provided 60, 90, or even 120-day credit to buyers, effectively financing their customers’ operations. The MSMED Act, 2006 prescribed maximum payment timelines, but enforcement was weak.
Section 43B(h) changes the incentive structure fundamentally. By making delayed payment to MSMEs a tax disallowance, it creates a direct financial consequence for the buyer — not just a civil liability to the seller. Consequently, every business with MSME suppliers now has a tax-driven reason to pay within the statutory timeline.
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