Moment guide · FY 2026-27

I am paying MSME suppliers late

When are MSME payments disallowed under section 43B(h)?

Under section 43B(h), payments to Micro and Small enterprises must be made within 15 days of supply, or 45 days if a written agreement exists, or the expense is disallowed in the year of accrual and allowed only in the year of actual payment. Medium enterprises are not covered, and the rule applies from AY 2024-25.

The #1 trap

Thinking section 43B(h) covers all suppliers — it covers only Micro and Small enterprises under the MSME Development Act, not Medium enterprises, so a buyer can pay a Medium supplier late without losing the deduction. Also, the 15-day rule applies unless a written agreement extends it to 45 days; a verbal 'we always pay in 60 days' does not protect the deduction.

Ravi, manufacturer with a mix of MSME and large suppliers

Ravi's factory buys raw material from three suppliers: a Micro unit, a Small unit and a Medium unit, and he typically pays invoices in 60 days. Under section 43B(h), from AY 2024-25 payments to Micro and Small enterprises must be made within 15 days of receipt of goods, or 45 days if there is a written agreement. Ravi has a written agreement only with the Small supplier, so that payment can go up to 45 days; the Micro supplier has no agreement, so the payment must clear within 15 days. For a purchase of ₹8,00,000 from the Micro supplier on 1 December 2025, paid on 20 December 2025, the payment is within 15 days and the ₹8,00,000 is deductible in FY 2025-26. But he pays a March 2026 invoice of ₹6,00,000 from the same Micro supplier only in May 2026, which is beyond 15 days with no agreement — that ₹6,00,000 is disallowed in FY 2025-26 and becomes deductible only in FY 2026-27 when the payment is actually made. The Medium supplier's invoices of ₹5,00,000 paid in 60 days are unaffected by 43B(h), because Medium enterprises are outside the provision, and the normal accrual deduction under section 36(1)(iii) continues. Ravi reworks his payment cycle to clear Micro and Small invoices within the deadlines, and he digitises the agreement with the Small supplier so 45 days applies. He tracks the disallowed amounts in a register so the timing differences are reflected correctly in each year's return. A quick call with us dials in the final figure. Ravi also notes that the 15-day clock runs from the date of receipt of goods or services, not from the invoice date, so a supplier who delivers on the 1st and invoices on the 10th still triggers the clock on the 1st. If the payment is part of a running account with multiple invoices, he applies the rule invoice by invoice, because an omnibus 'we pay every 60 days' arrangement does not satisfy the provision without a written agreement. The written agreement that extends the term to 45 days must be executed before the supply, not drafted after a dispute. The disallowed amount in the accrual year is added back in the return and claimed in the year of actual payment, which creates a timing difference he tracks in a register. A quick call with us dials in the final figure.