No Change in MSME Payment Compliance: Government Defends Section 43B(h) in Parliament

Last updated: 28 July 2026

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The UK government has reaffirmed its commitment to Section 43B(h) of the Income Tax Act, designed to ensure timely payments to Micro and Small Enterprises (MSEs). This provision, introduced in 2023, links tax deductions for businesses to actual payments made to MSEs within the 45-day limit set by the MSMED Act. The government stated in Parliament that the aim is to improve MSE liquidity and reduce their reliance on external financing, despite some industry concerns about its impact.

The Government has reiterated that Section 43B(h) of the Income Tax Act was introduced to promote timely payments to Micro and Small Enterprises (MSEs) and address their long-standing working capital challenges. Responding to an Unstarred Question in the Rajya Sabha, Minister of State for Finance Shri Pankaj Chaudhary explained that the provision, introduced through the Finance Act, 2023, disallows tax deductions on payments due to micro and small enterprises unless such payments are actually m

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FAQ :

Section 43B(h) is a tax provision that disallows tax deductions on payments to micro and small enterprises unless these payments are made within the timelines prescribed by the MSMED Act, 2006.

The primary objective is to promote timely payments to Micro and Small Enterprises (MSEs), address their working capital challenges, and improve their liquidity by ensuring faster realisation of dues.

Under the MSMED Act, payments to eligible micro and small enterprises must generally be made within an agreed period, which cannot exceed 45 days.

Yes, questions were raised in Parliament about whether the enforcement of Section 43B(h) led to buyers cancelling orders or shifting to unregistered vendors. The government acknowledges continuing discussions within industry circles regarding its practical impact.

The provision applies only to amounts payable to micro and small enterprises as classified under notifications issued under the MSMED Act, 2006.

Yes, the Finance Ministry stated that the provision was introduced after extensive consultations with stakeholders, including the Ministry of MSME.

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CCI News Desk

Finance news reporter covering taxation, GST, income tax, business compliance, and economy updates. I simplify complex financial topics into easy-to-understand articles for professionals, taxpayers, and business owners on leading finance and tax platforms.

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