Since April 2024, a buyer cannot claim a deduction for a payment to a registered micro or small enterprise until the payment is actually made - and if it runs past the statutory window, the deduction moves to the year of payment rather than the year of the invoice.
That is section 43B(h) of the Income Tax Act, and it is a sharper instrument than the MSMED Act penalties that preceded it. The MSMED Act has required payment within 45 days since 2006, with interest at three times the RBI bank rate for delay. Almost nobody enforced it, because enforcing it meant a supplier suing the customer they depend on.
What the rule actually says
- The window is 45 days where there is a written agreement, and 15 days where there is not.
- It applies to enterprises registered as micro or small. Medium enterprises are outside it.
- The consequence is a deduction deferred, not a fine. The buyer eventually gets the deduction - in a later year.
That last point is the one most often overstated. This is a timing penalty on the buyer's tax, not a transfer to the supplier.
Why suppliers still wait
Three reasons, and none of them are about the law being weak.
- Registration. The protection follows your Udyam registration, not your size. An unregistered small enterprise gets none of it. Registration is free and takes an afternoon.
- The clock starts at acceptance, not at the invoice date. A buyer who does not formally accept a delivery can argue the window has not begun.
- Nobody wants to be the supplier who invoked it. The remedy is real and the relationship is realer.
What to do with it
Register on Udyam if you have not. Put your registration number on your invoices - it is what tells a buyer's accounts team which rule applies to your bill. Get delivery acknowledged in writing, because that is what starts the clock.
And treat the rule as leverage in a conversation rather than a lawsuit waiting to happen. Most finance teams do not want a deferred deduction on a line they could simply have paid.
None of this is legal or tax advice. If a specific invoice matters enough to argue about, ask your CA - the facts of acceptance and registration decide it, and they are yours, not ours.