Section 43B (h) of Income Tax Act, 1961 - Disallowances of expenses due to non-payment to MSMEs

CA Piyush Agarwal | Last updated: 27 March 2024

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Quick Summary

Section 43B(h) of the Income Tax Act, 1961, introduces new rules regarding payments to Micro, Small, and Medium Enterprises (MSMEs). It mandates that expenses incurred for payments to MSMEs must be paid within a specific timeframe (typically 45 days from the invoice date) to be allowed as a deduction in the same financial year. Failure to meet this deadline can result in the disallowance of such expenses for tax purposes. The article also defines the criteria for classifying businesses as MSMEs based on turnover and investment.

Section 43B (h) of Income Tax Act, 1961

Section 43B(h): MSME Payment Rules and Expense Disallowance

Definition of MSME Enterprises

Particulars	MICRO	SMALL	MEDIUM
Turnover	<=5 Crore	<=50 Crore	<=250 Crore
Investment in Plant & Machinery	<=1 Crore	<=10 Crore	<=50 Crore

Time Limit for Payment

Non-Applicability of New Clause (h) of Section 43B

Other Points

Examples

Particulars	Invoice Date	Payment Due (45 Days)	Actual Payment	Deduction Allowed (FY)
Example-1	01-Feb-2024	16-Mar-2024	29-Mar-2024	2023-24
Example-2	01-Feb-2024	16-Mar-2024	03-Apr-2024	2024-25
Example-3	17-Feb-2024	02-Apr-2024	01-Apr-2024	2023-24
Example-4	17-Feb-2024	02-Apr-2024	04-Apr-2024	2024-25
Example-5	01-Mar-2024	14-Apr-2024	11-Apr-2024	2023-24
Example-6	01-Mar-2024	14-Apr-2024	22-Apr-2024	2024-25
Example-7	15-Nov-2023	29-Dec-2023	06-Apr-2024	2024-25
Example-8	15-Nov-2023	29-Dec-2023	28-Mar-2024	2023-24
Example-9	16-Feb-2024	31-Mar-2024	01-Apr-2024	2024-25
Example-10	15-Sept-2023	29-Oct-2023	02-Apr-2024	2024-25
Example-11	15-Sept-2023	29-Oct-2023	01-Oct-2023	2023-24