MSME Section 43B(h) Evaluator
Verify payment compliance limits (15/45 days), calculate statutory compounding interest, and check income tax disallowance risks instantly.
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Only Micro (< ₹5Cr turnover) & Small (< ₹50Cr turnover) vendors trigger statutory penalty controls.
Increases payment deadline from 15 days to a maximum of 45 days.
Overdue by 5 Days
The statutory payment window of 45 days ended on 3 Oct 2026.
Statutory Interest Payable
₹419
3x RBI Bank Rate (20.25% p.a.) compounded monthly.
Corporate Tax Risk Impact
₹0
Expense deductible in the current financial year.
Statutory Disallowance Breakdown
Critical Auditing Caveats:
Permanent Tax Loss u/s 23
The ₹419 interest penalty cannot be claimed as a business expense. You pay ₹126 extra in corporate tax permanently.
No Expense Disallowance
Although payment was delayed, it occurred before the year-end (2027-03-31). The purchase expense remains fully deductible in the current year. (Only the interest penalty applies).
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Understanding Income Tax Section 43B(h)
Introduced to safeguard the liquidity of micro and small business units in India, Section 43B(h) of the Income Tax Act dictates that any sum payable to a Micro or Small enterprise must be cleared within statutory timelines. Failure to comply leads to heavy disallowance of purchase deductions, boosting corporate income tax liabilities temporarily or permanently.
The 15 & 45-Day Rules
Timelines depend strictly on the presence of a formal written agreement between the buyer and the MSME vendor:
- No Written Agreement: Payment must be cleared within 15 days from receipt of goods or services.
- With Written Agreement: Capped at the contract deadline, but can never exceed 45 days under any circumstance.
Penal Interest & Audit Consequences
If payments are delayed beyond the statutory limit, buyers are subjected to severe, non-negotiable statutory rules:
- 3x RBI Bank Rate Interest: Compound interest is payable to the vendor on a monthly rest basis for the delay period.
- Expense Disallowance: The paid interest is strictly non-deductible as business expenditure, and delayed purchases unpaid at year-end are added to taxable profits.
MSME Section 43B(h) FAQs
Key questions on MSME 45-day payment limits, interest penalties, and tax disallowance.
Section 43B(h) of the Income Tax Act disallows tax deductions for business expenses payable to Micro and Small Enterprises (MSMEs) if payment is not cleared within 15 days (where no written agreement exists) or within the agreed period up to a maximum of 45 days.
No. Section 43B(h) applies strictly to Micro and Small manufacturing and service enterprises registered under Udyam. It does not apply to Medium enterprises or MSME wholesale/retail traders.
If paid after the statutory deadline but within the same financial year, the expense is allowable in that year. If unpaid by year-end, the amount is added back to taxable business profits and can only be claimed as a deduction in the year it is actually paid.
You can track MSME overdue bills in Tally Prime via the Outstanding Bills report (Display > Statement of Accounts > Outstandings > Payables) or using automated Bill-by-Bill ageing tracking.
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