Section 43B(h): 45-Day Payment Rule & Classification Criteria
In the Finance Act of 2023, Section 43B(h) was inserted in the Income Tax Act. The newly inserted section aims to facilitate the micro, small, and medium enterprises by limiting the delayed payments and offering benefits to MSMEs and their big corporate dealers of goods or services or both. This section was effective from the 1st of April 2024 for assessment 2024-25, and there are no significant changes to this section of the income tax for assessment year 2025-26. This article writes about the applicability of the section, the payment rule described under this section, and newly revised classification limits for MSMEs.
What is Section 43B(h)?
Section 43B(h) permits businesses to deduct payments made to micro and small enterprises for goods and services. It helps them reduce the total taxable income of the businesses if they have made the payment within the stipulated timeframe given in the section.
This section was formulated to address the common issue faced by the small and micro enterprises as delayed payments. The delayed payments halt the growth engine even at the beginning level and limit the cash flow of budding businesses. To boost the cash flow and support the financial health and operational continuity of small and micro businesses, section 43B(h) proved to be no less than a blessing.
For Example
An ABC enterprises deal with a XYZ micro enterprise and buys goods from it. Now, the ABC has to pay Rs 5L for receiving the supply of goods from XYZ. If ABC made the payment to XYZ within the stipulated time as per section 43B(h), it will be eligible to deduct Rs 5L from the total taxable income by the end of the financial year.
Payment Rule for MSME under Section 43B(h)
Under section 43B(h), there is a 45-day payment rule under which all businesses dealing with small and micro enterprises have to make the payment for receiving goods and services within the first 45 days. If such is not followed by the businesses, they will most likely lose claiming the payment as deductions while filing the income tax returns, which results in more tax to the government.
If there is no contract signed between these two parties, then the business has to make the payment within the first 15 days after the date of acceptance or date of deemed acceptance of the goods and services as per section 15 of MSMED Act.
The 45-day payment rule is a win-win for the parties dealing in the business as the small and micro enterprises are going to see improved cash flow while the company can pay taxes on reduced taxable income. It is going to reduce the financial strain faced by the MSMEs.
Though the 45-day payment rule under section 43B(h) is applicable to all large businesses but it leaves wholesale and retail traders out of the scope as applicable to manufacturing and service providers.
Revised Classification Limits for MSMEs
To benefit more and more emerging enterprises, the Union Government revised the investment and turnover threshold for MSME in 2025. It means more businesses will be able to utilize subsidies and lower tax rates specifically designed for MSMEs. The following limits will be effective from the 1st of April 2025.
| Business Category | Revised Investment Limits | Revised Turnover Limits |
| Micro | Rs 2.5Cr | Rs 10Cr |
| Small | Rs 25Cr | Rs 100Cr |
| Medium | Rs 125Cr | Rs 500Cr |
Section 43B and Clause h provide much relief to the MSMEs units in India. It improves the operational efficiency of the large business units as they have to maintain a track record of invoices, monitor payment due dates, and timely settlement of payments to claim the allowable expenses. Reach out to TaxDunia to claim the deductions and meet the legal compliance whether you are an MSME or a lager and established business. We provide real time updates and comprehensive support to your business.
