The 45-day MSME payment rule (Section 43B(h)): what it actually means for you.

In the Union Budget 2023–24, the government inserted a new clause — Section 43B(h) — into the Income Tax Act. The short version: if a large company buys from a registered MSME and doesn't pay within 45 days (or the agreed credit period, whichever is shorter), they can't deduct that expense until they actually pay.

This is a significant shift in how large buyers treat MSME payables. It affects you whether you're the supplier (great news) or the buyer (compliance burden).

What exactly changed

Before this amendment, large companies could record a purchase and deduct it from their taxable income immediately — even if they hadn't paid the MSME supplier yet. That's gone now. The deduction is only allowed in the year the payment is actually made.

Who does this apply to?

• Suppliers: you must be registered under Udyam (MSME registration). If you're not registered, this protection doesn't apply to you.
• Buyers: the disallowance applies to companies buying from registered MSMEs — regardless of the buyer's size.
• Timeline: the clock starts from the date of acceptance of goods or services, or the date agreed in writing — whichever is earlier.
• Limit: 45 days if there's no written agreement. If there is a written agreement, the agreed period — but it cannot exceed 45 days under MSMED Act provisions.

What this means for your receivables

If you're a Udyam-registered MSME supplying to larger companies, you now have more leverage on payment timelines than you did before. Large buyers are increasingly aware of this provision and many have started prioritising MSME payments to avoid the tax disallowance.

In practice: if a buyer is approaching financial year-end and has unpaid MSME invoices, they're under pressure to clear them before March 31. This is a window you should be using actively.

What you should do now

1. 1
   Register on Udyam if you haven't. Without registration, this protection doesn't exist for you. It's free and takes under an hour.
2. 2
   Audit your current receivables. Which buyers owe you more than 45 days? Start with those.
3. 3
   Send formal written communications referencing Section 43B(h). Many buyers respond immediately once they understand the tax consequence.
4. 4
   Set up automated reminders at Day 30, Day 40, and Day 45. Don't wait until Day 60 to chase.
5. 5
   Track which buyers consistently pay late. These are credit risks — review your credit terms with them.

If you're also a buyer of MSME goods

You now have a compliance obligation. Review your vendor list, identify which are Udyam-registered, and ensure your payment cycles are within 45 days for those vendors. Your finance team needs a system that flags MSME invoices approaching Day 40 — before they become a tax issue.