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For Chartered AccountantsRates reviewed September 2026

MSME Payment Disallowance Calculator: Section 43B(h)

This MSME payment disallowance calculator applies the rule that most people still call section 43B(h). Under the Income-tax Act, 2025 the same rule sits in section 37(2)(g) (earlier section 43B(h) of the Income-tax Act, 1961). It says that an amount payable to a micro or small enterprise is deductible only in the year it is actually paid, unless it is paid inside the time limit set by section 15 of the MSMED Act, 2006.

The time limit is 15 days from the day of acceptance of the goods or services where there is no written agreement, and the agreed date where there is one, subject to an outer ceiling of 45 days. A longer credit period written into a purchase order does not extend the window past 45 days for this purpose. So the practical test on 31 March is simple: for every unpaid balance owed to a micro or small supplier, ask whether its section 15 window had already expired on that date.

Two exclusions do most of the work in practice. The supplier must be a micro or small enterprise, so amounts owed to a medium enterprise are outside the provision, and the enterprise must hold a valid Udyam registration covering the period of supply. Wholesale and retail traders are allowed Udyam registration only for priority sector lending, so trading purchases are generally outside the rule. The calculator flags both cases rather than disallowing everything in the creditors ledger.

MSME 43B(h) Calculator

₹

The day of actual delivery, or the day a written objection was removed.

Written agreement on credit terms

Without one the window is a flat 15 days from the day of acceptance.

Anything longer than 45 days is read down to 45 for this purpose.

days

Disallowed in the year of the expense

₹6,00,000

24 days past the section 15 due date, allowed as a deduction in FY 2027-28

Invoice amount
₹6,00,000
Section 15 time limitAgreed credit period, capped at 45 days from the day of acceptance
45 days
Section 15 due date10 Feb 2027 plus 45 days
27 Mar 2027
Days of delayPaid on 20 Apr 2027
24 days
Position on 31 MarchYear end tested: 31 Mar 2027
Unpaid
Payment falls in the same financial yearExpense in FY 2026-27, payment in FY 2027-28
No
Disallowed under section 37(2)(g), earlier 43B(h)Added back in FY 2026-27
₹6,00,000
Year of deductionThe year of actual payment
FY 2027-28
MSMED section 16 interestCompounded with monthly rests from 28 Mar 2027, roughly 2 months of rests
Three times the RBI bank rate
  • Applies only to a supplier holding Udyam registration as a micro or small enterprise for the period of supply. Medium enterprises, unregistered suppliers and traders registered for wholesale or retail trade are outside the provision.
  • Paying before the return filing due date does not save the deduction. For micro and small enterprise dues only the section 15 date and the date of actual payment matter.
  • Section 16 interest is three times the RBI bank rate in force, so the rupee figure follows the rate notified for the period. It is payable to the supplier whether or not it is demanded, and it is not deductible in the income-tax computation.

The formula

Disallowance = Sum of unpaid micro and small enterprise invoices whose section 15 window expired on or before 31 March

Section 15 window
15 days from the day of acceptance where there is no written agreement, otherwise the agreed date subject to a 45 day ceiling.
Day of acceptance
The day of actual delivery, or where a written objection to the goods or services is raised within 15 days, the day the objection is removed.
Micro or small enterprise
A supplier holding Udyam registration as micro or small for the period of supply. Medium enterprises and traders are not covered.
Year of allowance
The tax year in which the payment is actually made, not the year of the expense.

The relief that lets other actual-payment items be claimed if paid before the return due date does not extend to micro and small enterprise dues.

How to calculate it

  1. 1

    Pull the supplier master and confirm status

    Collect Udyam registration numbers and check whether each supplier is micro, small or medium, and whether the registration covers the period of supply. Status is taken as it stood when the supply was made, not as it stands today.

  2. 2

    Drop suppliers who are outside the provision

    Remove medium enterprises, unregistered suppliers and suppliers registered under wholesale or retail trade. Trading activity carries Udyam registration only for priority sector lending, so those balances are not hit by section 37(2)(g) (earlier 43B(h)).

  3. 3

    Fix the due date for each invoice

    Where there is a written agreement, take the agreed date, capped at 45 days from the day of acceptance. Where there is none, take 15 days from the day of acceptance. Record the day of acceptance from the goods receipt note or service acceptance, not from the invoice date.

  4. 4

    Compare the due date with the year end

    If the invoice was paid on or before its due date, the expense stays in the year of the expense. If the due date fell on or before 31 March and the invoice was still unpaid on that date, the amount is disallowed for that year.

  5. 5

    Add the disallowance back and carry it forward

    Add the total to the computation for the year and claim it as a deduction in the year the payment is actually made. Report the same figures in the tax audit report clause that asks for micro and small enterprise dues.

  6. 6

    Compute interest under section 16 MSMED separately

    Interest for delayed payment runs at three times the RBI bank rate, compounded with monthly rests, from the appointed day. This is a statutory liability to the supplier, and it is itself not deductible in the income-tax computation.

Section 15 MSMED payment window and the section 37(2)(g) (earlier 43B(h)) outcome

Section 15 MSMED payment window and the section 37(2)(g) (earlier 43B(h)) outcome
Supplier and termsPayment windowPaid inside the windowYear of deduction
Micro or small enterprise, no written agreement15 days from the day of acceptanceYesYear of the expense
Micro or small enterprise, no written agreement15 days from the day of acceptanceNoYear of actual payment
Micro or small enterprise, written agreement up to 45 daysThe agreed dateNoYear of actual payment
Micro or small enterprise, written agreement beyond 45 days45 days from the day of acceptanceNoYear of actual payment
Medium enterprise supplierOutside the provisionNot relevantYear of the expense on accrual
Supplier registered on Udyam for wholesale or retail tradeOutside the provisionNot relevantYear of the expense on accrual
Supplier without Udyam registration for the period of supplyOutside the provisionNot relevantYear of the expense on accrual

Worked example

Supplier status
Small enterprise, Udyam registered
Invoice value
₹6,00,000
Day of acceptance
10 February 2027
Written agreement
45 day credit period
Date actually paid
20 April 2027
  • Section 15 due date = 10 February 2027 + 45 days = 27 March 2027
  • Status on 31 March 2027: unpaid, and the window had already expired
  • Disallowed in FY 2026-27 (AY 2027-28) = ₹6,00,000
  • Payment falls in FY 2027-28, so the deduction moves to that year

₹6,00,000 is added back in FY 2026-27 and allowed as a deduction in FY 2027-28.

Frequently asked questions

The rule now sits in section 37(2)(g) of the Income-tax Act, 2025, which took effect on 1 April 2026. Section 37 of the 2025 Act carries forward the actual-payment deductions that were in section 43B of the Income-tax Act, 1961, including the micro and small enterprise clause. The substance is unchanged, so guidance written around 43B(h) still applies.
It is 15 days from the day of acceptance if there is no written agreement on credit terms. If there is a written agreement, the agreed date applies, but it can never exceed 45 days from the day of acceptance. A 60 or 90 day credit term in a purchase order is read down to 45 days for this purpose.
Only a supplier holding Udyam registration as a micro or small enterprise for the period during which the supply was made. Medium enterprises are outside section 15 of the MSMED Act for delayed payment purposes and so outside the disallowance. Registration obtained after the supply does not pull an earlier invoice into the provision.
Generally no. Wholesale and retail traders were permitted Udyam registration by an MSME ministry office memorandum dated 2 July 2021, but that registration entitles them only to priority sector lending benefits. The delayed payment protection in sections 15 and 16 of the MSMED Act, and therefore the income-tax disallowance, does not extend to them.
In the tax year in which the amount is actually paid. If a February 2027 invoice is disallowed in FY 2026-27 because it was unpaid past its due date on 31 March 2027, and it is settled in April 2027, the deduction is claimed in FY 2027-28. There is no permanent loss of the deduction, only a timing shift.
No. The relief that allows other actual-payment items to be claimed if paid before the due date for filing the return does not apply to micro and small enterprise dues. For this clause the only date that matters is the section 15 due date and, failing that, the date of actual payment.
Section 16 of the MSMED Act, 2006 requires the buyer to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, running from the appointed day. It is payable to the supplier whether or not the supplier raises a demand. That interest is not deductible in the income-tax computation.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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