Pay your MSME suppliers within 45 days, or lose the tax deduction
Section 43B(h) disallows the expense if you pay a micro or small supplier late. A quick checklist to stay safe at year-end.
If you buy from a micro or small enterprise registered on Udyam, you must pay them on time. If you don’t, the expense is not deductible in that year, even though you have booked it.
The rule in one line
Payment is due within 45 days if there is a written agreement, or 15 days if there isn’t. If the amount is still unpaid at year-end beyond that limit, the deduction moves to the year in which you actually pay.
Why it matters
A business with ₹50 lakh of overdue MSME payables at 31 March could see ₹50 lakh added to its taxable profit. At a 25% tax rate, that is roughly ₹12.5 lakh of extra tax for the year.
Year-end checklist
- Ask every supplier for their Udyam certificate and record the category (micro, small or medium).
- Put written credit terms of no more than 45 days in purchase orders.
- Run an ageing report of MSME creditors before 31 March and clear anything overdue.
- Companies: report outstanding dues in MSME-1 on time.
Medium enterprises and traders registered only for priority-sector lending are outside this rule. Check the category on the certificate.
On the other side?
If you are a micro or small enterprise, this rule works for you. Mention your Udyam number on every invoice so your customers have a reason to pay you within 45 days.
Not sure how this affects you?
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