Executive Overview: In India's industrial and corporate ecosystem, Micro and Small Enterprises (MSEs) serve as the backbone of manufacturing, supply chain logistics, and service delivery. However, prolonged delayed payments by medium and large corporate buyers have historically choked the working capital of small suppliers, triggering widespread financial distress. To enforce strict commercial payment discipline and inject liquidity into the MSME sector, the Finance Act, 2023 introduced a monumental amendment: Section 43B(h) of the Income-tax Act, 1961 (effective from Assessment Year 2024-25). Under Section 43B(h), any sum payable by a buyer to a Micro or Small enterprise beyond the time limit specified in Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is strictly disallowed as a business expenditure in the year of accrual. Crucially, unlike the other clauses of Section 43B—which allow deductions if payments are cleared on or before the due date for filing the return of income under Section 139(1)—Section 43B(h) contains no relaxation for payment before the ITR due date! If a payment is outstanding beyond 15 days (where no written agreement exists) or beyond 45 days (under a written contract) as of March 31, the entire unpaid expense is added back to taxable business profits, triggering substantial corporate tax liabilities. Furthermore, Section 16 of the MSMED Act imposes mandatory compound interest with monthly rests at three times the RBI Bank Rate, which is expressly disallowed under Section 23 of the MSMED Act and Section 37 of the Income-tax Act. For chartered accountants, tax auditors, CFOs, and corporate controllers, managing vendor Udyam classification, distinguishing manufacturers/service providers from wholesale/retail traders, reconciling supplier ledgers with Clause 22 of Form 3CD, and ensuring Schedule III trade payable disclosures presents severe operational challenges. This comprehensive guide provides an exhaustive operational blueprint of Section 43B(h), dissecting its statutory anatomy, mathematical threshold applications, audit defense strategies, and automated vendor surveillance using assureOffice.
- Statutory Structure & The Non-Obstante Mandate: Detailed breakdown of Section 43B(h) and its interaction with the opening proviso to Section 43B, explaining why payment before the ITR due date does not cure default.
- Micro vs Small vs Medium Enterprise Classifications: Exact investment and turnover thresholds under the composite criteria of the MSMED Act, and why Medium enterprises are completely outside the purview of Section 43B(h).
- The Crucial Exclusion of Traders (Wholesale & Retail): Why enterprises registered under Udyam solely with trading NIC codes (NIC 45, 46, and 47) cannot claim the benefit of Section 43B(h) under Office Memorandum 5/2(2)/2021-E/P & G/Policy.
- Section 15 of the MSMED Act Payment Timelines: Deciphering the 15-day default rule versus the 45-day contract ceiling, handling "appointed day" mechanics, and formal objection procedures under the 15-day defect notice window.
- Tax Disallowance Mechanics & Subsequent Year Deduction: How year-end unpaid invoices are taxed at 25%/30% plus cess, and the exact timing of claiming deductions upon actual payment in subsequent financial years.
- Form 3CD Clause 22 & Schedule III Audit Reporting: Reporting overdue principal and interest in Tax Audit Form 3CD and matching with CARO 2020 and Schedule III ageing schedules in assureTax.
1. Statutory Architecture: Section 43B(h) and Section 15 of MSMED Act
Section 43B of the Income-tax Act enacts a special provision allowing certain statutory and business deductions only upon actual payment. The Finance Act, 2023 inserted clause (h) into Section 43B with effect from April 1, 2024 (AY 2024-25):
"43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—
...
(h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006,
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid:"
Crucially, Parliament amended the first proviso to Section 43B to specifically exclude clause (h):
"Provided that nothing contained in this section [except clause (h)] shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139..."
The words "[except clause (h)]" represent the operational crux of the entire provision. While taxes, employee PF/ESI contributions, bank interest, and bonus can be paid right up to September 30 or October 31 (the return filing due date) and still claimed as deductions in the preceding financial year, MSME vendor liabilities must be paid strictly within the timeframe mandated by Section 15 of the MSMED Act. Payment after March 31, even if made within a few days, triggers immediate disallowance for the financial year ending March 31!
To grasp the statutory alignment between direct tax and MSME laws, examine the comparative statutory matrix below:
| Statutory Provision | Governing Statute | Core Legal Mandate | Tax / Financial Implication |
|---|---|---|---|
| Section 43B(h) | Income-tax Act, 1961 | Disallows deduction of expenses payable to Micro and Small enterprises if unpaid beyond Section 15 timelines as on March 31. | Disallowed expense added to taxable profit; taxable at 22% / 25% / 30% plus surcharge and cess in the current year. |
| Section 15 | MSMED Act, 2006 | Mandates buyer to make payment on or before the agreed date (maximum 45 days) or within 15 days if no written agreement exists. | Statutory benchmark determining the exact date of default for tax disallowance and interest calculation. |
| Section 16 | MSMED Act, 2006 | Levies mandatory compound interest with monthly rests at 3 times the RBI Bank Rate for payments delayed beyond Section 15 dates. | Substantial penal interest liability; buyers cannot contractually waive or reduce this statutory interest rate. |
| Section 23 | MSMED Act, 2006 | Provides that interest payable or paid by any buyer under Section 16 shall not be allowed as a deduction in computing income. | Section 16 interest is 100% permanently disallowed; added back in Tax Audit Form 3CD Clause 22. |
| Section 24 | MSMED Act, 2006 | Gives overriding effect to Sections 15 to 23 of MSMED Act notwithstanding anything inconsistent therewith in any other law. | MSME payment rules prevail over standard commercial contract terms and general trade credits. |
2. Entity Classification: Micro, Small and Medium Enterprises
A frequent error made by corporate finance teams is assuming Section 43B(h) applies to all MSME vendors. The statute explicitly restricts the disallowance to sums payable to Micro or Small enterprises. Medium enterprises are completely excluded from Section 43B(h)!
The Composite Criteria under Notification S.O. 2119(E)
Under the revised definition effective July 1, 2020, an enterprise is classified based on composite criteria of Investment in Plant & Machinery / Equipment and Annual Turnover:
| Enterprise Category | Investment in Plant & Machinery / Equipment | Annual Turnover Threshold | Covered under Section 43B(h)? |
|---|---|---|---|
| Micro Enterprise | Does not exceed ₹1 Crore | Does not exceed ₹5 Crores | YES (MANDATORY APPLICABILITY) |
| Small Enterprise | Does not exceed ₹10 Crores | Does not exceed ₹50 Crores | YES (MANDATORY APPLICABILITY) |
| Medium Enterprise | Does not exceed ₹50 Crores | Does not exceed ₹250 Crores | NO (COMPLETELY EXCLUDED) |
Rules of Composite Criteria:
- Conjunctive Test: Both conditions must be satisfied. If an enterprise has an investment of ₹80 Lakhs (Micro limit) but its turnover reaches ₹12 Crores, it graduates into a Small Enterprise. If its turnover reaches ₹65 Crores, it becomes a Medium Enterprise, and Section 43B(h) ceases to apply to its payables!
- Exclusion of Export Turnover: Under the MSMED Act, turnover from exports of goods and services is excluded when calculating the turnover ceiling.
- Written Down Value (WDV) Basis: Investment in plant and machinery is linked to the Income Tax Return (ITR) filed for previous years under Section 32, excluding land, building, and furniture.
The Critical Wholesale & Retail Trader Carve-Out
Perhaps the most contentious practical question under Section 43B(h) was whether payments to wholesale and retail traders registered on the Udyam portal fall under Section 43B(h).
- Office Memorandum No. 5/2(2)/2021-E/P & G/Policy (July 2, 2021): The Ministry of MSME allowed Retail and Wholesale Trade to register on the Udyam portal under National Industry Classification (NIC) Codes 45, 46, and 47 solely for the priority sector lending (PSL) benefits from commercial banks.
- Office Memorandum dt. 01-09-2021: The Ministry clarified that benefits of the MSMED Act extended to traders are restricted strictly to Priority Sector Lending, and the other benefits—including the Chapter V delayed payment protection under Sections 15 to 23—do NOT apply to traders!
- CBDT & ICAI Clarification: Because Section 43B(h) refers to the time limits specified in Section 15 of the MSMED Act, and Section 15 does not apply to traders, Section 43B(h) DOES NOT APPLY to outstanding dues payable to wholesale and retail traders! Even if a supplier submits an Udyam certificate, the buyer must inspect the major activity: if the certificate specifies "Trading" or lists NIC Codes 45, 46, or 47, no disallowance under Section 43B(h) arises on unpaid balances. Practitioners can verify vendor NIC codes automatically in assureTax.
3. Mathematical Timelines under Section 15: The 15-Day vs 45-Day Rule
Section 15 of the MSMED Act establishes strict statutory timelines for commercial settlements:
| Scenario | Contractual Status | Statutory Payment Deadline | Statutory Rule under Section 15 |
|---|---|---|---|
| Case 1: No Written Agreement | Oral purchase order or informal invoice without written credit terms. | Within 15 days from the "day of acceptance" or "day of deemed acceptance". | Default statutory window; payment after Day 15 constitutes illegal delay. |
| Case 2: Written Agreement ≤ 45 Days | Written contract specifying payment within 30 days. | Within 30 days as agreed in writing. | Payment must be made within the mutually agreed timeline. |
| Case 3: Written Agreement > 45 Days | Written contract attempting to specify payment within 60, 90, or 120 days. | Capped at 45 days by statutory ceiling! | The contractual credit period is legally overridden; payment after Day 45 violates Section 15. |
| Case 4: Objection Raised by Buyer | Buyer raises formal written objection regarding defect in goods/services within 15 days of delivery. | 15 days from the date defect is removed by the supplier. | The "day of acceptance" is postponed until the supplier formally rectifies the defect. |
Understanding the "Day of Acceptance" and "Deemed Acceptance"
- "Day of Acceptance": The day of actual physical delivery of goods or the rendering of services. Where an objection is made in writing by the buyer regarding any defect or deficiency within fifteen (15) days from the delivery, the day on which such objection is removed by the supplier constitutes the day of acceptance.
- "Day of Deemed Acceptance": Where no objection is made in writing within fifteen days of delivery, the day of deemed acceptance is the actual day of physical delivery of goods or rendering of services.
4. Operational Disallowance Mechanics under Section 43B(h)
To understand the mechanics of disallowance and re-allowance, consider the exact timing of payments relative to March 31 of any financial year:
| Invoice Date | Delivery Date | Credit Term Agreed | Statutory Due Date (Sec 15) | Actual Payment Date | Tax Treatment under Section 43B(h) |
|---|---|---|---|---|---|
| Feb 10, 2025 | Feb 10, 2025 | 30 Days | March 12, 2025 | March 25, 2025 | ALLOWED in FY 2024-25: Paid delayed beyond Section 15, but paid within the same financial year. Not outstanding on March 31! (Note: Interest u/s 16 payable for 13 days). |
| March 01, 2025 | March 01, 2025 | No written agreement (15 days) | March 16, 2025 | April 15, 2025 | DISALLOWED in FY 2024-25: Outstanding beyond Section 15 on March 31. Added to taxable profit in FY 2024-25. Allowed as deduction in FY 2025-26 upon payment. |
| March 20, 2025 | March 20, 2025 | 45 Days written agreement | May 04, 2025 | April 28, 2025 | ALLOWED in FY 2024-25: Although unpaid on March 31, the payment was made within the 45-day statutory window (May 4). Full deduction allowed in FY 2024-25! |
| March 20, 2025 | March 20, 2025 | 45 Days written agreement | May 04, 2025 | May 20, 2025 | DISALLOWED in FY 2024-25: Paid after the statutory due date of May 4. Added to taxable profit in FY 2024-25; allowed in FY 2025-26 upon payment. |
| March 25, 2025 | March 25, 2025 | No written agreement (15 days) | April 09, 2025 | April 05, 2025 | ALLOWED in FY 2024-25: Outstanding on March 31, but paid within 15 days on April 5. Fully deductible in FY 2024-25! |
Crucial Rule for Transactions Settled Within the Same Financial Year: If an invoice is received in June 2024 with a 45-day credit period and is paid in November 2024 (delayed by 90 days), does Section 43B(h) disallow the expense? NO! Because the invoice was paid within the same financial year (before March 31, 2025), the expense is fully allowed in FY 2024-25. However, the buyer remains liable to pay compound interest under Section 16 of the MSMED Act, which is permanently non-deductible.
5. Form 3CD Clause 22 & Schedule III Financial Disclosures
Under Section 44AB, statutory tax auditors must audit and report delayed MSME payments under Clause 22 of Form 3CD:
"Clause 22: Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006."
Auditor Verification Protocol for Clause 22
- Identify All Overdue Invoices: Scrutinize all payments made to Micro and Small suppliers during the previous year that were delayed beyond the 15/45-day limit.
- Compute Compound Interest under Section 16: Calculate interest at three times the RBI Bank Rate (compounded monthly) from the appointed day to the date of actual payment.
- Verify P&L Treatment: Ensure that any interest paid or provided in the books under Section 16 is added back to taxable income, as mandated by Section 23 of the MSMED Act.
- Verify Schedule III Trade Payable Ageing: Under the Companies Act, 2013 (Schedule III Division I and II), corporate balance sheets must present a detailed ageing schedule of trade payables, explicitly disclosing:
- (i) MSME trade payables - Due < 1 year, 1-2 years, 2-3 years, > 3 years;
- (ii) MSME trade payables - Unbilled dues; and
- (iii) MSME disputed dues.
6. Real-World Practical Case Studies & Worked Numerical Illustrations
Case Study 1: Manufacturing Unit Year-End Invoice Audit
Context: Precision Auto Parts Ltd purchases specialized raw materials from Micro Supplier M (Udyam certified manufacturer). During FY 2024-25, the following transactions occur:
- Invoice #401 (dt. 15-01-2025): ₹12,00,000. Written credit term: 45 days (Due: 01-03-2025). Paid on 20-04-2025.
- Invoice #408 (dt. 20-03-2025): ₹8,00,000. Written credit term: 45 days (Due: 04-05-2025). Paid on 30-04-2025.
- Invoice #415 (dt. 26-03-2025): ₹5,00,000. No written agreement (15-day limit applies; Due: 10-04-2025). Paid on 18-04-2025.
Tax Audit Evaluation for FY 2024-25:
| Invoice No. | Invoice Amount | Statutory Due Date | Actual Payment Date | Section 43B(h) Disallowance in FY 2024-25 | Deduction Allowed in FY 2025-26 |
|---|---|---|---|---|---|
| Invoice #401 | ₹12,00,000 | 01-03-2025 | 20-04-2025 | ₹12,00,000 DISALLOWED (Unpaid on 31-03-2025 and delayed beyond Sec 15) | ₹12,00,000 allowed in FY 2025-26 upon actual payment. |
| Invoice #408 | ₹8,00,000 | 04-05-2025 | 30-04-2025 | NIL (FULLY ALLOWED) (Paid within statutory 45-day window on 30-04-2025) | Already allowed in FY 2024-25. |
| Invoice #415 | ₹5,00,000 | 10-04-2025 | 18-04-2025 | ₹5,00,000 DISALLOWED (Paid on 18-04-2025, which exceeds the 15-day limit of 10-04-2025) | ₹5,00,000 allowed in FY 2025-26 upon actual payment. |
| Total | ₹25,00,000 | - | - | ₹17,00,000 Added to Taxable Income | ₹17,00,000 Deductible in FY 2025-26 |
Financial Impact: The company's taxable business profit is increased by ₹17,00,000. At a corporate tax rate of 25.17% (Section 115BAA), the company must pay an additional upfront tax of ₹4,27,890 for FY 2024-25, which can only be recouped as a lower tax liability in FY 2025-26.
Case Study 2: Trader Udyam Certificate Trap
Context: Apex Logistics Ltd purchases ₹35,00,000 worth of computer hardware and networking cables from Tech Distributor Pvt Ltd. The invoice is dated February 20, 2025. The invoice is unpaid as on March 31, 2025, and is settled on May 15, 2025. The supplier furnished an Udyam Registration Certificate reflecting "Micro Enterprise".
Due Diligence Investigation:
- The finance team examined the Udyam certificate using assureTax and noted the primary business activity is registered under NIC Code 46511 (Wholesale of computers, computer peripheral equipment and software).
- Under Office Memorandum No. 5/2(2)/2021-E/P & G/Policy, traders registered on Udyam are entitled solely to Priority Sector Lending and are excluded from Chapter V (Sections 15 to 23) of the MSMED Act.
- Conclusion: Section 43B(h) is NOT attracted! The outstanding balance of ₹35,00,000 is fully deductible on an accrual basis in FY 2024-25, saving the company from an unnecessary tax disallowance of ₹8,80,950.
Case Study 3: Supplier Obtaining Udyam Registration Mid-Year
Context: Vendor Delta delivered custom fabricated tooling on August 10, 2024, for ₹15,00,000. At the time of supplying the goods, Vendor Delta was not registered on the Udyam portal. On February 15, 2025, Vendor Delta obtained Udyam registration as a Small Enterprise and demanded payment within 45 days. The payment remained unpaid as on March 31, 2025.
Legal Determination: In multiple landmark rulings (including the Supreme Court ruling in Silpi Industries), courts have established that the protection of the MSMED Act is available only if the supplier was registered under the Act on the date of entering into the contract or supplying the goods/services. Retrospective registration does not alter the nature of past transactions. Because Vendor Delta was unregistered on August 10, 2024, Section 43B(h) does not apply to that transaction.
Case Study 4: Purchase of Capital Goods (Plant & Machinery)
Context: Modern Textile Mill purchases an automated spinning loom for ₹80,00,000 from Micro Manufacturer K. Modern Textile capitalizes the machine in its fixed asset block. Payment is delayed beyond 45 days and is unpaid as on March 31, 2025.
Interplay Analysis: Section 43B(h) disallows "a deduction otherwise allowable under this Act". When capital goods are acquired, the cost is not claimed as a deduction under Section 28 to 44DB; instead, the asset is capitalized, and depreciation is claimed under Section 32. Depreciation is an statutory capital allowance, not a payment deduction. Therefore, Section 43B(h) cannot disallow the purchase price of capital goods! The mill continues to claim 15% depreciation on the capitalized asset.
7. Step-by-Step Compliance & Verification Checklist
Tax auditors, finance managers, and corporate buyers can follow this structured operational matrix:
| Step | Compliance Checkpoint | Statutory Reference | Source Document / Action |
|---|---|---|---|
| 1 | Annual Vendor Classification Review | Notification S.O. 2119(E) | Collect fresh Udyam Registration Certificates from all vendors at the beginning of each financial year. |
| 2 | Filter Micro and Small vs Medium | MSMED Act Section 7 | Segregate Micro and Small enterprises. Mark Medium enterprises as exempt from Section 43B(h). |
| 3 | Verify Activity (Manufacturing / Service vs Trading) | MSME OM dt. 02-07-2021 | Examine NIC codes on Udyam certificates. Mark wholesale/retail traders (NIC 45-47) as exempt. |
| 4 | Audit Written Agreements & POs | Section 15 MSMED Act | Verify whether purchase orders or master service agreements specify credit terms (capped at 45 days). |
| 5 | March 31 Outstanding Ledger Scan | Section 43B(h) | Extract all trade payables as of March 31. Filter suppliers identified as Micro/Small manufacturers or service providers. |
| 6 | Calculate Statutory Due Dates | Section 15 MSMED Act | Compute statutory due date (15 days or agreed credit ≤ 45 days from delivery date) for every invoice. |
| 7 | Trace Subsequent Payment Clearance | Section 43B Proviso | Identify invoices paid on or before the statutory due date in April/May. Exclude from disallowance. |
| 8 | Compute Section 43B(h) Add-Back | Income-tax Act Section 43B(h) | Total all unpaid overdue invoices and add to taxable profit in assureTax. |
| 9 | Calculate Compound Interest | Section 16 MSMED Act | Compute interest at 3x RBI Bank Rate for delayed payments and report in Form 3CD Clause 22. |
| 10 | Schedule III Ageing Reconciliation | Companies Act Schedule III | Reconcile trade payables ageing disclosure in assureFinancials with tax audit schedules. |
8. Integrating assureOffice Suite into MSME Compliance Workflows
The assureOffice ecosystem provides seamless modules to automate MSME compliance:
- assureFinancials: Scans ERP vendor masters, automatically extracts Udyam registration numbers, validates supplier enterprise classifications against the MCA/MSME database, and flags trader NIC codes to prevent erroneous disallowances.
- assureTax: Generates automated Section 43B(h) year-end disallowance schedules, tracks 15-day and 45-day statutory due dates against invoice delivery logs, and pre-populates Form 3CD Clause 22 interest calculations.
- assureNotice: Features specialized appellate reply formats for defending against Section 143(1)(a) automated prima facie adjustment notices issued by CPC Bengaluru regarding MSME disallowances.
- assurePractice: CA practice tool for managing multi-client tax audit working papers, standardizing vendor declaration formats, and maintaining comprehensive MSME audit trails.
9. Practitioner FAQs: Navigating Section 43B(h) & MSMED Act
Q1. If an invoice of an MSE supplier is paid after 45 days but before March 31, is Section 43B(h) attracted?
No. Section 43B(h) applies only to sums that remain payable (outstanding) as of the end of the previous year (March 31) beyond the Section 15 timeline. If the invoice was paid within the same financial year, the expenditure is fully allowed in that year. However, interest under Section 16 of the MSMED Act is payable for the delayed period.
Q2. Can a buyer enter into an agreement with an MSME vendor for a 60-day or 90-day credit period?
Under Section 15 of the MSMED Act, the agreed credit period "shall not in any case exceed forty-five days from the day of acceptance". Any contractual clause attempting to extend credit beyond 45 days is void ab initio. The statutory payment due date remains capped at 45 days.
Q3. Does Section 43B(h) apply to assessees filing returns under the presumptive taxation scheme (Section 44AD / 44ADA)?
No. Sections 44AD and 44ADA open with non-obstante clauses: "Notwithstanding anything that is contained in sections 28 to 43C...". The presumptive taxation provisions override Section 43B(h). A professional opting for Section 44ADA or a small business opting for Section 44AD is not subject to Section 43B(h) disallowance.
Q4. Does Section 43B(h) apply to outstanding dues payable to Medium Enterprises?
No. Section 43B(h) specifically uses the phrase "sum payable by the assessee to a micro or small enterprise". Dues payable to Medium enterprises (investment up to ₹50 Cr, turnover up to ₹250 Cr) are completely exempt from Section 43B(h).
Q5. Are retail and wholesale traders covered under Section 43B(h)?
No. While retail and wholesale traders are allowed to register on the Udyam portal under NIC codes 45, 46, and 47 for Priority Sector Lending, the Ministry of MSME clarified that Chapter V of the MSMED Act (delayed payment protection) does not apply to traders. Therefore, Section 43B(h) does not apply to purchases from traders.
Q6. If an MSE supplier delivers goods on March 25, 2025, with no written agreement, what is the due date?
Under Section 15, in the absence of a written agreement, payment must be made within 15 days from delivery. The statutory due date is April 9, 2025. If the buyer pays on or before April 9, 2025, the expense is fully allowed in FY 2024-25, even though it was unpaid on March 31!
Q7. What if an invoice is disputed due to defective goods or short delivery?
If the buyer raises a formal objection in writing within 15 days of delivery, the "day of acceptance" is postponed under Section 2(b) of the MSMED Act until the supplier removes the objection. The 15/45-day countdown begins only from the date the defect is formally resolved.
Q8. Does Section 43B(h) apply to capital expenditures or purchase of fixed assets?
No. Section 43B(h) disallows deductions claimed in computing business profits under Section 28. Capital expenditures are capitalized on the balance sheet, and depreciation is claimed under Section 32. Depreciation cannot be disallowed under Section 43B(h).
Q9. Is interest paid under Section 16 of the MSMED Act tax-deductible?
No. Section 23 of the MSMED Act explicitly provides that interest payable or paid under Section 16 shall not be allowed as a deduction in computing taxable income. It must be added back in Form 3CD Clause 22.
Q10. What rate of interest is payable on delayed payments to MSMEs?
Under Section 16 of the MSMED Act, interest is payable at three times the Bank Rate notified by the Reserve Bank of India, compounded with monthly rests.
Q11. What happens if a supplier does not inform the buyer about its Udyam registration?
The buyer should obtain an annual written declaration or verify Udyam registration status from vendors. If the buyer made reasonable inquiries and the vendor failed to provide an Udyam certificate, the buyer can rely on the vendor's un-registered status, supported by a Management Representation Letter (MRL).
Q12. What if a supplier was registered as Micro when the order was placed, but became Medium during the year?
Enterprise classification is governed by the composite criteria updated dynamically on the Udyam portal. If the supplier graduated to Medium status before the invoice was raised, Section 43B(h) will not apply to that invoice.
Q13. In which assessment year is a disallowed expense under Section 43B(h) allowed as a deduction?
Under Section 43B(h), the disallowed expenditure is allowed as a deduction in the subsequent financial year in which the sum is actually paid.
Q14. Does Section 43B(h) apply to advance payments made to suppliers?
No. Advance payments are assets (advances) and not accrued expenses. Section 43B(h) applies only to accrued deductions claimed against business income.
Q15. Can an assessee claim deduction under Section 43B(h) if payment is made before filing the ITR under Section 139(1)?
No. The first proviso to Section 43B explicitly excludes clause (h). Paying before the ITR filing due date does not prevent disallowance if payment was delayed beyond the Section 15 timeline.
Q16. What is the auditor's reporting responsibility in Form 3CD Clause 22?
The tax auditor must examine the books of account, identify all delayed payments to Micro and Small enterprises, compute the compound interest inadmissible under Section 23 of the MSMED Act, and disclose the exact amount in Clause 22 of Form 3CD.