Section 43B(h): The MSME payment law every founder must know
A change in the Income Tax Act now gives MSMEs unprecedented leverage over delayed payments from large buyers. Here is what it means and how to use it.
In the Finance Act 2023, Parliament inserted clause (h) into Section 43B of the Income Tax Act. This single provision changed the power dynamic between Indian MSMEs and their large corporate buyers.
What the law says
Any payment due to a registered MSME supplier must be made within the time specified under the MSMED Act 2006. If the buyer delays beyond this period, they cannot claim that expense as a deduction under their income tax return for that financial year. The deduction is only available in the year when payment is actually made.
In plain language: if a large company owes your MSME money and does not pay within the legal deadline, they pay higher taxes. This creates a direct financial incentive for on-time payment.
What the MSMED Act says about timelines
If there is no written agreement between buyer and supplier, payment must be made within 15 days of delivery. If there is a written agreement, the maximum permitted credit period is 45 days. Anything beyond 45 days is a violation regardless of what the contract says.
Who it applies to
Section 43B(h) applies to buyers who are companies or individuals with auditable accounts. The MSME supplier must be registered under the Udyam portal. Both conditions must be met for the protection to apply.
How to use this as leverage
First, ensure your Udyam registration is active and up to date. Second, include the 45-day payment term explicitly in all purchase orders and agreements. Third, follow up at day 30 with a written reminder citing Section 43B(h). The reminder does not need to be threatening. A simple note that payment beyond 45 days creates a tax deduction issue for the buyer is usually sufficient.
Where FynHelp fits
FynHelp does not track MSME payment deadlines for you. What it does: every payment in the bank statement is matched to the books with its date, so when you review a client's month you can see which supplier bills were paid and when, and check them against the 15 and 45 day limits.
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How FynHelp helps
FynHelp runs a CA firm's month-end close in four steps: bank statement and Tally export extraction, bank reconciliation, source-traceable MIS reports and automated document follow-ups. See pricing for CA firms.
FynHelp reads statements and Tally exports, matches bank to books and drafts the MIS. Free to start, no card needed.
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