Section 43B(h) Explained: The Tax Rule That Makes Buyers Pay MSMEs in 45 Days

For years the frustration of chasing a large buyer was that you had all the risk and none of the leverage. Since April 2024, Section 43B(h) of the Income Tax Act has quietly changed that — and in 2026 it has become one of the most important rules a small supplier in India can understand.

What Section 43B(h) actually says

Section 43B(h) links a buyer's tax deduction to whether they paid a micro or small supplier on time.

Normally a business claims an expense as a deduction in the year it is incurred, regardless of when it pays. Section 43B(h) removes that convenience for payments to registered micro and small enterprises: if the buyer does not pay within the deadline set by the MSMED Act, the deduction is only allowed in the year the payment is actually made.

In plain terms — delay paying you, and the buyer's taxable income goes up now, and the deduction slips to a future year.

The 15-day and 45-day deadlines

The deadline comes from Section 15 of the MSMED Act:

• No written agreement: payment is due within 15 days.
• Written agreement: payment is due within the agreed period, which cannot exceed 45 days.

This is the same framework behind the MSME 45-day payment rule. Section 43B(h) is what gives that rule teeth, by attaching a tax cost to missing it.

Why this matters for suppliers, not just buyers

Most coverage of Section 43B(h) is written for buyers worried about compliance. Flip it around: for a registered micro or small supplier, this is the first time the tax code itself pushes your customer to pay you on time.

Two consequences stack up on a late-paying buyer:

1. Lost deduction this year — the unpaid amount is added back to their taxable income until they pay.
2. Interest under the MSMED Act — compound interest at three times the RBI notified bank rate, which is not tax-deductible either.

Together these turn "we'll pay you next quarter" into a decision with a real price tag for the buyer. That is your leverage.

How to actually use it

1. Register on Udyam. The protection only covers registered micro and small enterprises.
2. Put terms in writing, within 45 days. Without a written agreement you are capped at 15 days, which is often too tight — a clear written 30 or 45 day term is usually better for both sides. See Net 15 vs Net 30 vs Net 45.
3. Invoice immediately and state your status. The clock starts from acceptance of goods or services, so delayed invoicing only hurts you.
4. Follow up before the deadline, not after. A reminder a few days before the 15 or 45 day limit lets the buyer pay before the tax and interest consequences bite. This is exactly where an automated invoice follow-up platform earns its keep — it nudges the buyer on schedule without you having to track every due date by hand.

A quick example

You are a registered small service provider. You invoice a company ₹5,00,000 on 1 May with a written 45-day term.

• If they pay by 15 June, they deduct the ₹5,00,000 this financial year as normal.
• If they pay in August instead, they lose that deduction for the current year, their taxable income rises by ₹5,00,000 now, and they owe you compound interest at 3× the RBI bank rate on the delay.

The delay is no longer free for them — and a well-timed reminder that mentions the deadline is often all it takes.

The bottom line

Section 43B(h) does not collect the money for you, but it changes the incentive. A buyer who used to treat your invoice as an interest-free loan now has a tax and interest reason to pay within 45 days. Register, make your status visible, set written terms, and follow up on time — and let the rule do the persuading.