Section 43B(h) (Income Tax Act)

An anti-delay tax provision enacted by the Indian Parliament disallowing business expenditure deductions for any payments owed to Micro and Small enterprises if not paid within statutory MSMED Act timelines.

Legal Enforceability Under Indian Law

Introduced by Finance Act 2023 effective FY 2023-24 onwards. Requires payments to Micro/Small vendors to be cleared within 15 days (no agreement) or maximum 45 days (written agreement). If unpaid by March 31, the expense is added back to taxable income and taxed at corporate rates.

Standard Sample Clause Language

The buyer agrees to settle all valid vendor invoices within forty-five (45) days of receipt, in accordance with Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 and Section 43B(h) of the Income Tax Act, 1961.

Common Drafting Pitfalls to Avoid

✕Assuming paying before ITR filing saves the deduction (clause (h) is explicitly excluded from the Section 43B proviso).
✕Treating Medium enterprises as subject to 43B(h) (Medium enterprises are exempt).

Frequently Asked Questions

Can an agreement specify 60 or 90 days credit for MSME vendors?

No. Section 15 of the MSMED Act explicitly overrides contracts; any agreement specifying a credit period exceeding 45 days is legally restricted to 45 days.

Related Commercial & Legal Terms

MSME 45-Day Payment Rule →

The statutory mandate under Section 15 of the MSMED Act 2006 requiring buyers of goods or services to make payment to registered MSME suppliers within a maximum of 45 days.

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