Key TakeawayThe Finance Act 2023 amendment to Section 43B introduced a new disallowance for payments to MSMEs delayed beyond statutory timelines. This brief explains what it means for corporates buying from registered MSMEs.
Section 43B(h), effective from AY 2024–25, disallows deductions for payments due to registered MSMEs unless made within the time limits specified under the MSMED Act — 15 days where there is no written agreement, or 45 days where there is. CBDT's recent clarification has sharpened the compliance obligations for buyers.
The key point many corporates have missed: the 15/45-day clock begins not from the invoice date but from the date of acceptance of goods or services. Where there is a dispute or rejection, the clock restarts from the date of resolution. Buyers must ensure their ERP systems can track this distinction correctly.
Practically, buyers should: (1) audit their MSME vendor base to confirm registration status under the MSMED Act; (2) review open payables as at 31 March 2026 and determine whether any disallowance is required in the income tax return for AY 2026–27; and (3) implement payment controls to avoid future disallowances, particularly for vendors in the micro and small categories.
The CBDT clarification also addresses what happens when payment is made in the subsequent year — the deduction is available in the year of payment, not the year of accrual. This creates a manageable but important timing difference that finance teams need to track. APRA recommends reviewing the position with your direct tax partner before filing the return.
What this means for your business
This briefing is based on current regulatory positions as of 9 May 2026. Laws and regulatory positions change frequently. Before acting on any information in this publication, we strongly recommend consulting with a qualified partner who can assess your specific facts and circumstances. Contact our Regulatory Update team at info@aprafirm.com or 0124-4477824/825.