Which creditors are Udyam-registered micro or small enterprises? Collect Udyam certificates (the supplier’s invoice or confirmation is the best source), and record the classification date — a supplier’s status on the date of the transaction governs. Medium enterprises and unregistered suppliers are outside 43B(h).
Traders are the standard confusion: wholesale and retail traders hold Udyam registration for priority-sector lending, but the MSMED Sec 2(n) "supplier" definition 43B(h) rides on covers manufacturers and service providers — purchases from traders are generally outside the disallowance. Capital creditors are also outside (43B disallows deductions; a machine purchase was never a deduction).
MSMED Sec 15: payment by the agreed date (which cannot exceed 45 days from acceptance) — or within 15 days where there is no written agreement. The clock runs from acceptance of goods/services, not the invoice date, where they differ.
Paid within the limit during the year: allowed, nothing to do. Outstanding at year end but still inside its 15/45-day window and paid within it: allowed on accrual. Outstanding beyond the window at year end: disallowed this year under 43B(h), allowed in the year of actual payment — no before-the-return-date rescue, because the proviso to 43B expressly does not apply to clause (h).
Delayed MSME payments carry compound interest at three times the bank rate under MSMED Sec 16 — and Sec 23 of the MSMED Act makes that interest permanently non-deductible. Whether or not the client provided for it, the tax auditor reports it under Form 3CD clause 22.
Clause 22: MSMED Sec 16 interest inadmissible. Clause 26 carries the 43B reporting including clause (h) amounts. The working paper should show the supplier register, the per-invoice ageing against the 15/45-day windows, the disallowance computation, and the payment-year reversals of last year’s disallowance.
Citation note for FY 2026-27 documents: old Sec 43B = new Sec 37 of the Income Tax Act 2025 (while old Sec 37 became Sec 34) — the single most collision-prone pair in the new Act. Dual-cite.
The 3CD template carries clauses 22 and 26 ready for the letterhead; the per-ledger scrutiny checklist is where the supplier-class ageing evidence lives.
CORAA ages every creditor from the books and splits payables party-wise — see AI working papers or start free: your first audit is on us.
Any sum payable to a micro or small enterprise beyond the MSMED Sec 15 time limit (agreed period up to 45 days, or 15 days without a written agreement) is deductible only in the year of ACTUAL payment. Inserted by the Finance Act 2023 with effect from AY 2024-25, and unlike the rest of 43B, paying before the return-filing due date does not save the accrual-year deduction.
Generally no. 43B(h) points at the MSMED "supplier" definition, which covers micro and small manufacturers and service providers. Wholesale and retail traders hold Udyam registration only for priority-sector-lending purposes, so amounts payable to traders are ordinarily outside the disallowance — though documentation of the supplier’s activity classification is what defends the position.
If the invoice is still within its Sec 15 window at the balance-sheet date and is paid within that window, the deduction stays in the accrual year. The disallowance bites only where the window has expired with the amount unpaid at year end.
No on both. The clause covers micro and small enterprises only — medium enterprises are outside. And since 43B operates on deductions, capital creditors (plant purchases and the like) are not hit, though the MSMED interest and disclosure obligations still apply to them.
In the year of actual payment, as a deduction under the 43B machinery — track prior-year disallowances and their payment-year reversals in the working paper. Under the Income Tax Act 2025, note the citation trap: old Sec 43B maps to NEW Sec 37, while old Sec 37 became Sec 34 — dual-cite in FY 2026-27 documents.
MSMED Sec 16 imposes compound interest at three times the RBI bank rate on payments beyond Sec 15. That interest is permanently disallowed by MSMED Sec 23 — it never becomes deductible, even on payment — and the tax auditor reports it under Form 3CD clause 22 whether or not the books provided for it.
