MSME 45-Day Payment Rule (Section 43B(h)): Complete Guide for Indian SMBs
Priya Sharma
· 7 min read
The Finance Act introduced Section 43B(h) to the Income Tax Act with a single clear goal: compel medium and large enterprises to pay Micro and Small Enterprises on time. For Indian SMB suppliers, it is the strongest statutory lever in years to eliminate 90-day and 120-day payment cycles.
The core rule: 15 days without agreement, 45 days with agreement
Under Section 15 of the MSMED Act, 2006, payment must be made to a registered micro or small enterprise within 15 days from the date of acceptance of goods or services, unless there is a written agreement specifying a different timeline.
Even with a written contract, the credit period cannot exceed 45 days under any circumstances. Any contractual clause stipulating 60, 90, or 120 days is void under Indian law.
The severe tax penalty on delayed buyers
If a buyer fails to pay a micro or small enterprise within the 15 or 45-day window before the financial year ends, the entire unpaid expense is disallowed as a tax deduction in that assessment year.
This forces the buyer to pay corporate income tax (typically 25% or 30% plus surcharges) on the full invoice amount. In addition, Section 16 of the MSMED Act mandates penal interest at 3 times the RBI bank rate, compounded monthly — an expense that cannot even be claimed as a business deduction.
What sellers must put on every invoice
To enforce Section 43B(h), sellers must include their 19-digit Udyam Registration Number prominently on all invoices and contract agreements, accompanied by explicit payment milestone dates.
VoyceBook automatically stamps your Udyam Certificate number on GST-compliant PDFs and calculates MSME-compliant due dates, alerting both you and the buyer before the 45-day statutory deadline passes.