For most small machine shops, the hardest part of a job is not the tolerance. It is getting paid on time. Section 43B(h) was meant to help with that, and it has changed how many buyers look at their MSME vendors. Here is what it says, who it covers and what you can do on your side.

This is a general guide, not tax or legal advice. Please check your own case with your chartered accountant.

What Section 43B(h) says

Clause (h) was added to Section 43B of the Income Tax Act by the Finance Act, 2023. It applies to any sum a buyer owes to a micro or small enterprise that is paid after the time limit in Section 15 of the MSMED Act, 2006.

If the amount is still unpaid at the end of the financial year and the limit has passed, the buyer cannot claim it as an expense that year. The expense is allowed only in the year it is actually paid. For a profitable buyer, that means paying tax on money it has not yet been allowed to deduct, which is a strong reason to pay on time.

15 days or 45 days?

  • No written agreement: payment is due within 15 days of accepting the goods or services.
  • Written agreement: payment is due on the agreed date, and the agreed period cannot exceed 45 days.

The clock runs from acceptance or deemed acceptance, not from when the buyer gets around to booking the invoice.

Who is covered

  • Covered: sums payable to micro and small enterprises that are manufacturers or service providers.
  • Not covered: medium enterprises.
  • Traders: the tax commentary we referred to explains that traders on Udyam get only priority-sector lending benefits, so the clause applies to manufacturers and service providers.
  • Small buyers too: a micro or small enterprise buying from another micro or small enterprise is also covered.

Interest on late payment

Separately from the tax rule, Section 16 of the MSMED Act gives the supplier a right to compound interest with monthly rests at three times the bank rate notified by the RBI. The buyer cannot deduct this interest as a business expense. Few small suppliers claim it, because they do not want to upset the customer, but it is worth knowing it exists.

What it changed in practice

When the rule took effect, some buyers paid faster. Others pushed back. Business Standard reported that an apparel industry body said some retailers had cancelled orders with MSMEs in favour of non-MSME suppliers. On the shop floor, you may see buyers asking you to agree to 45-day terms in writing, or asking whether you are registered as an MSME at all.

What a supplier should do

  1. Show your Udyam registration number on quotations, invoices and your vendor registration form.
  2. Put payment terms on the PO. If the customer's PO is silent, ask for terms in writing. Remember that anything over 45 days does not count for this rule.
  3. Record the acceptance date. Keep the delivery challan, GRN or inspection clearance date, since the clock starts at acceptance.
  4. Get rejections and deviations closed quickly. A disputed lot often becomes the reason a payment slips. A clean inspection report and matching documents with the shipment remove that excuse.
  5. Price for your real payment cycle. If a customer still pays in 90 days in practice, the cost of that working capital belongs in your quote.

Where SpecReview fits

Payments slip most often when a lot is disputed: a dimension the customer measures differently, a missing certificate or an invoice that does not match the PO. SpecReview helps on the documents side, with a quality plan and layout inspection plan from the drawing, and invoices, packing lists and a CoC built from the customer's PO, so the paperwork that travels with your parts is consistent.