Compliance Tool / Tax Advisor

Udyam MSME Classification Checker: Micro vs Small (2026)

Verify Udyam MSME Micro vs Small classification criteria, plant & machinery investment thresholds, and Section 43B(h) 45-day payment disallowance rules.

Quick Answer: How Are MSMEs Classified & How Does Section 43B(h) Apply?

MSME classification follows composite criteria: Micro (Investment ≤ ₹2.5 Cr & Turnover ≤ ₹10 Cr), Small (Investment ≤ ₹25 Cr & Turnover ≤ ₹100 Cr), Medium (Investment ≤ ₹125 Cr & Turnover ≤ ₹500 Cr). Section 43B(h) disallowance applies ONLY to Micro and Small suppliers — payments must be made within 15 days (no agreement) or 45 days (with agreement).

  • Updated composite thresholds effective from Budget 2025/2026.
  • Export turnover is strictly excluded when calculating the annual turnover limit.
  • Section 43B(h) applies ONLY to Micro & Small enterprises (Medium & Traders are exempt).
  • Unpaid invoices as of March 31 beyond 15/45 days are added back to taxable income.

Composite MSME Classification Limits & Section 43B(h) Applicability

Enterprise CategoryInvestment LimitAnnual Turnover LimitSection 43B(h) Status
Micro EnterpriseUp to ₹2.5 CroreUp to ₹10 CroreApplicable (15 / 45 days)
Small EnterpriseUp to ₹25 CroreUp to ₹100 CroreApplicable (15 / 45 days)
Medium EnterpriseUp to ₹125 CroreUp to ₹500 CroreExempt (Not Applicable)
Traders / WholesaleVariesVariesExempt (Only for Priority Lending)

Section 43B(h) Payment Disallowance Rules & Timelines

1
Verify Supplier Udyam Status

Collect Udyam Registration Certificate from all vendors. Identify Micro vs Small suppliers. Confirm they are Manufacturers or Service Providers (not Traders).

2
Determine Payment Agreement Status

If a written purchase contract exists specifying credit terms, maximum allowed credit period is 45 days. If no written agreement exists, payment limit is 15 days.

3
Calculate Outstanding Days at Year-End (March 31)

Any invoice unpaid beyond the 15-day or 45-day threshold as of March 31 is disallowed under Section 43B(h) for that financial year.

4
Deduction Allowed in Year of Actual Payment

The disallowed expense is added back to taxable income for the current year and can only be claimed as an expense in the financial year when actually paid.

Automate Purchase Bill Booking in Tally Prime

Post verified vendor invoices with correct MSME supplier tagging in 15 seconds.

TrulyInvoice AI extracts vendor GSTINs, supplier bill dates, and line items, posting verified F9 Purchase Vouchers to Tally Prime. Ensure accurate invoice booking dates to avoid Section 43B(h) tax disallowance penalties.

Frequently Asked Questions

What are the updated MSME Micro vs Small vs Medium limits in 2026?▾
Effective April 1, 2025/2026: Micro Enterprises have Investment ≤ ₹2.5 Crore AND Turnover ≤ ₹10 Crore. Small Enterprises have Investment ≤ ₹25 Crore AND Turnover ≤ ₹100 Crore. Medium Enterprises have Investment ≤ ₹125 Crore AND Turnover ≤ ₹500 Crore. Both criteria must be met.
Does Section 43B(h) payment disallowance apply to Medium Enterprises?▾
No. Section 43B(h) of the Income Tax Act applies EXCLUSIVELY to Micro and Small Enterprises. Payments to Medium Enterprises or Traders are excluded from Section 43B(h) disallowance rules.
What is the maximum payment timeline under Section 43B(h) for MSMEs?▾
If a written contract exists, payment must be made within 45 days. If no written agreement exists, payment must be made within 15 days of acceptance of goods/services. If unpaid by March 31, the expense is added back to taxable income.
Is export turnover included in the MSME annual turnover limit?▾
No. Export turnover of goods or services is strictly EXCLUDED from the annual turnover calculation when determining MSME Micro, Small, or Medium classification.
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