Section 43B(h) of the Income Tax Act links your expense deduction to actually paying your micro and small suppliers within the time limit. It is one of those rules that quietly reshapes how businesses manage their payables, so it is worth understanding clearly.
What the rule says
If you buy from a registered micro or small enterprise, you must pay them within the agreed time - capped at 45 days where there is a written agreement, and 15 days where there is none. If you do not pay within that window in the same financial year, the expense is disallowed for that year and only allowed when you actually pay.
Who it applies to
The protection covers suppliers registered as micro or small enterprises under the MSME framework. The deduction impact falls on the buyer, regardless of the buyer's own size. So even a larger business buying from a small registered supplier is affected.
Why it matters for cash flow
For buyers, stretching payments to small suppliers can now directly increase your taxable income for the year. For suppliers, the rule strengthens your position to be paid on time. Either way, payment discipline and clear written terms become a real financial lever, not just good practice.
What to do
- Identify which of your suppliers are registered micro or small enterprises.
- Track their invoices against the 45-day (or 15-day) clock.
- Keep written payment terms in your agreements.
- Reconcile pending dues before the financial year closes.
This article is general information, not tax or legal advice. Rules can change; confirm specifics for your business before acting.