Form 3CD Clause 22 MSME Working Paper Format 2026
FORM 3CD CLAUSE 22 — MSME INTEREST AND SECTION 43B(h) WORKING PAPER
Assessee: {{client_name}} · PAN: {{client_pan}} · Previous year ended: {{period_end}} · Assessment Year: 2026-27
What the clause asks (as substituted from 1 April 2025): (i) the amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act); (ii) the total amount required to be paid to micro or small enterprises, as referred to in section 15 of that Act, during the previous year; and (iii) out of (ii), the amount (a) paid within the time given under section 15, and (b) not paid within that time and inadmissible for the previous year. Section 43B(h) for the current year is therefore reported here, in clause 22, and not in clause 26(B).
1. Summary for the clause
| Item | Amount ₹ |
|---|
| 22(i) Interest under section 16 of the MSMED Act debited to P&L — inadmissible under section 23 | |
| A. Paid within the section 15 time limit | |
| B. Paid after the time limit but within the previous year | |
| C. Past the time limit and unpaid at year-end — inadmissible under section 43B(h) | |
| D. Unpaid at year-end but still within the time limit | |
| 22(ii) Total amount required to be paid to micro and small enterprises (A + B + C + D) | 0 |
- Row A is the figure for 22(iii)(a). Row C is the figure for 22(iii)(b): it is past the section 15 date and is not deductible this year because it was not paid during the year.
- Rows B and D do not map cleanly to the two lines of 22(iii). An amount paid late but within the year is deductible this year on payment; an amount not yet due at year-end is outside section 43B(h). The form does not give either a separate line. Decide the presentation, apply it to every supplier, and write the basis into the working paper and, where the figures will not add up on the face of the form, into the remarks.
- Clause 22(ii) is a flow for the whole year (purchases and services billed by micro and small suppliers that fell due for payment), not the year-end creditor balance.
2. Supplier-wise working
| Supplier | Udyam no. and category (micro / small) | Manufacturer / service / trader | Invoice no. and date | Date of acceptance | Agreed credit days (written) | Due date under section 15 | Amount ₹ | Date paid | Bucket (A / B / C / D) | Interest under section 16 ₹ |
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3. Rules applied
- Who is covered: suppliers that are micro or small enterprises registered under the MSMED Act (Udyam). Medium enterprises are outside sections 15, 16 and 43B(h).
- Classification from 1 April 2025: micro — investment in plant and machinery or equipment up to ₹2.5 crore and turnover up to ₹10 crore; small — investment up to ₹25 crore and turnover up to ₹100 crore. Rely on the category printed on the supplier’s Udyam certificate for the relevant period, not on your own estimate.
- Time limit (section 15): the date agreed in writing, which cannot exceed 45 days from the day of acceptance or deemed acceptance; where there is no written agreement, 15 days. An agreement for a longer period still gives only 45 days.
- Day of acceptance: the day of actual delivery of goods or rendering of services, or, where the buyer objects in writing within 15 days, the day the supplier removes the objection.
- Interest (section 16): compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, from the due date. Section 23 bars its deduction. Report under 22(i) the interest debited to the profit and loss account; where interest is payable under the Act but not provided in the books, note that fact in the working paper.
- Section 43B(h): the sum is deductible only in the year of actual payment. Payment after year-end but before the return due date does NOT save the deduction for the year, because the proviso to section 43B does not apply to clause (h).
- Traders: Udyam registration of retail and wholesale traders was opened by the MSME Ministry’s office memorandum of 2 July 2021 for the limited purpose of priority-sector lending. Many practitioners therefore treat dues to traders as outside section 15 and section 43B(h). Record the view taken and apply it consistently.
- Capital goods and expenses not claimed as deduction: section 43B(h) disallows a deduction otherwise allowable. Dues for capital assets are not a deduction in the first place, though they still count towards amounts required to be paid under section 15.
4. Evidence to obtain
- Vendor master with Udyam registration number, category and date of registration; copies or portal verification of Udyam certificates for material suppliers.
- Written confirmations sent to suppliers asking for MSME status, and a list of those who did not reply.
- Purchase and expense register with invoice date, goods-receipt or service-acceptance date, and payment date; creditor ageing at year-end.
- Purchase orders or agreements showing credit terms in writing.
- Bank statements for payments made around and after the year-end.
- The disclosure of dues to micro and small enterprises in the financial statements (Schedule III and section 22 of the MSMED Act) and any Form MSME-1 filed — these must be consistent with clause 22.
- Interest working, with the bank rate used and the period of delay for each invoice.
5. Common errors
- Counting days from the invoice date instead of the date of acceptance, or allowing more than 45 days because the purchase order says 60 or 90.
- Treating payment before the return due date as curing the disallowance, as it does for other section 43B items.
- Including medium enterprises, or suppliers who obtained Udyam registration after the supply.
- Reporting the year-end outstanding under 22(ii) instead of the total required to be paid during the year.
- Leaving 22(i) blank because no interest was provided in the books, without noting the unprovided liability.
- Reporting the same current-year 43B(h) amount again in clause 26(B).
- Forgetting last year: amounts disallowed under section 43B(h) in an earlier year and paid this year are allowable now and are reported in clause 26(A).
6. Flow to the return of income
Row C is added back in the business-income computation through the section 43B rows of the Other Information schedule of the return. Interest reported under 22(i) is added back as an amount not deductible. Amounts disallowed in an earlier year under section 43B(h) and paid this year are claimed as a deduction in the same schedule. Agree each of the three figures to the return before upload.
Conclusion: interest inadmissible under section 23 is ₹ ; amount inadmissible under section 43B(h) for the year is ₹ . Basis adopted for rows B and D and for traders: ____________. Suppliers whose status could not be confirmed: ____________.
Prepared by: {{prepared_by}} Reviewed by: Date: 1 October 2026
