Section 43B(h), introduced by the Finance Act 2023, is one of the sharpest compliance hits we've seen in years. If you're a buyer and you pay a registered MSME supplier beyond 45 days (where there's a written agreement) or 15 days (where there isn't), the expense is disallowed for tax — until actually paid.
What 'paid' actually means
Payment within the same financial year — deduction allowed in that year. Payment delayed beyond the 15/45-day window but cleared before 31 March — deduction allowed in that year. Payment unpaid as on 31 March — deduction shifted to the year of actual payment.
Crucially, this is on a per-invoice basis, not aggregated. One stuck invoice can disallow a single expense; multiple stuck invoices compound quickly into a material tax leak.
Setting up a compliant workflow
Identify every supplier with a UDYAM number — request the certificate at onboarding, not later. Tag MSME vendors in your ERP. Run a 45-day aging report on the 25th of every month and clear anything within 3 days of the cut-off. For supplier disputes, document the dispute in writing before the 45-day mark — that pauses the clock.
Already slipped? Here's the fix
Pay the outstanding invoices before 31 March of the current year — the disallowance reverses in the year of payment. For invoices already disallowed in a prior year, the deduction simply moves to whatever year you actually pay. There's no permanent loss, only a timing hit — but the cash-flow shock from a sudden tax demand catches finance teams unprepared.
About the author
Karan Bhatia, CA
Partner, Direct Tax at Regikart. Want to discuss this in the context of your business?
