The 45-day MSME payment rule — section 43B(h) of the 1961 Income-tax Act, carried into the Income-tax Act 2025 — denies a buyer the tax deduction for purchases from micro and small enterprises that remain unpaid beyond the MSMED Act limit: 15 days, or a maximum of 45 days where a written agreement exists. The deduction shifts to the year of actual payment.
In practice the rule bites at year-end. Any amount owed to a Udyam-registered micro or small supplier that is past the 15/45-day window on 31 March gets added back to your taxable income for that year, even if you pay in April. It covers goods and services from micro and small enterprises — medium enterprises are outside it, and purchases from traders are generally not covered. Unlike other year-end payment rules, paying before the return-filing due date does not save the deduction.
The working answer is supplier hygiene: collect Udyam certificates from every vendor, tag micro and small suppliers in your accounting software, run a creditor ageing well before 31 March, and clear flagged balances in time. Put credit terms in writing — a written agreement stretches your window from 15 to 45 days, which is often the whole game for a trading or manufacturing cycle.
The classic mistake is believing a 60- or 90-day credit period in your purchase contract protects you. It doesn't — the MSMED Act caps the agreed period at 45 days, and anything longer is read down. The disallowance is a timing hit, not permanent: you get the deduction when you actually pay, but the extra tax in a tight cash-flow year is very real.
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Reviewed to the law in force in FY 2026-27. General information, not advice — confirm the position for your facts before acting.