How to avoid disallowance of buyer business expenses and ensure seamless compliance with the MSMED Act 45-day vendor payment mandate.
# Understanding Section 43B(h) of the Income Tax Act
Section 43B(h) was enacted to ensure timely payments to Micro and Small enterprises. Non-compliance results in severe income tax disallowance of business expenditure.
## The Rule in Simple Terms
Any sum payable by a buyer to a micro or small enterprise beyond the time limit specified in Section 15 of the MSMED Act, 2006 will only be allowed as a deduction in the financial year in which the amount is actually paid.
### Statutory Time Limits:
- **With Written Agreement**: Maximum **45 days** from date of delivery of goods/services.
- **Without Written Agreement**: Within **15 days** from date of acceptance.
## Action Plan for Businesses:
1. **Collect Udyam Certificates**: Request active Udyam certificates from all vendor suppliers.
2. **Classify Vendors**: Identify which vendors qualify as Micro (<₹1 Cr capital, <₹5 Cr turnover) or Small (<₹10 Cr capital, <₹50 Cr turnover). Medium enterprises are exempt from Section 43B(h).
3. **ERP Alert Setup**: Configure aged accounts payable alerts at day 30 to clear dues before 45-day deadline.
CA
Authored by CA. Ananya Reddy, ACA
Practicing Fellow Chartered Accountant with Thabrez Tax Consulting Private Limited. Advises corporations, MSMEs, and high-net-worth clients across India.