Sec 43B(h) MSME disallowed query

Section 43B of the Income Tax Act, 1961, deals with certain deductions that are allowed only if the specified payments are made before the due date of filing the return of income. However, if your client has a turnover of up to ₹8 crores and has not conducted a tax audit, they may still be eligible for the deductions under Section 43B. The disallowance under Section 43B(h) is applicable only if the payment is made after the due date of filing the return of income. If your client has made the payments before the due date, they can claim the deductions. However, it's important to note that: 1. Your client should have filed the return of income within the due date. 2. The payments should be made before the due date of filing the return of income. 3. Your client should have the necessary documents and records to support the claims. Additionally, since your client has a turnover of up to ₹8 crores, they may be eligible for the presumptive taxation scheme under Section 44AD. If they opt for this scheme, they can claim a deemed profit of 8% of their turnover and pay tax accordingly. Please consult a tax expert or chartered accountant to ensure your client is meeting all the necessary conditions and taking advantage of the available deductions and schemes.

Section 43B(h) continues to be a major compliance issue for FY 2025-26 (AY 2026-27). Here is the precise rule:

DISALLOWANCE TRIGGER:
Payments to MICRO and SMALL enterprises (not Medium) must be made within:
- 15 days: if there is no written agreement between buyer and supplier
- 45 days: if there is a written agreement

If the payment to a Micro/Small MSME vendor is outstanding beyond these limits at year-end (31 March 2026), the expenditure is DISALLOWED in FY 2025-26 and allowed only in the year of actual payment.

IMPORTANT POINTS:
- This applies ONLY to Micro and Small enterprises ,  Medium enterprises are excluded
- You must verify the vendors MSME registration status from the Udyam portal
- Disallowance is computed under Section 43B(h) and must be added back in ITR-3
- In Form 3CD (tax audit report), this must be disclosed in Clause 26

AY 2026-27 ACTION:
1. Run a vendor-wise ageing report of MSME creditors as at 31 March 2026
2. Identify payments outstanding beyond 45 days (or 15 days if no agreement)
3. Add back the outstanding amount as disallowance under 43B(h)
4. These amounts will be allowed as deduction in FY 2026-27 when actually paid

For [ITR-3 filing and tax audit support including Section 43B(h) compliance](https://taxgarden.in/services/itr-filing), Tax Gardens CA team covers Form 3CD disclosures and MSME payment tracking.