Clause (h) of section 43B turns the MSMED Act payment deadline into a tax deadline. A sum owed to a micro or small enterprise and paid after the section 15 time limit is deductible only in the year it is actually paid. Unlike the other items in section 43B, paying before the return due date does not rescue it.

1. The rule in plain terms

The Finance Act, 2023 inserted clause (h) into section 43B with effect from 1 April 2024 (Assessment Year 2024–25). It reaches any sum payable to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act, 2006. Such a sum is allowed as a deduction only on actual payment, so the deduction is deferred to the year of payment. It is not lost.

The Income-tax Department’s text of section 43B shows why this clause behaves differently from its neighbours. The usual proviso lets a taxpayer claim an item if it is paid by the due date for filing the return for that year, but the proviso is expressly applied “except the provisions of clause (h)”. The familiar habit of clearing statutory dues before filing the return therefore does not work for MSE suppliers. Explanation 4 borrows the definitions of “micro enterprise” and “small enterprise” from sections 2(h) and 2(m) of the MSMED Act, so medium and large suppliers are outside the clause.

2. The deadline the clause borrows

Section 15 sets two tracks. Where the parties have a written agreement, the buyer must pay by the agreed date, and that agreed period can never exceed 45 days from acceptance or deemed acceptance. Where there is no written agreement, payment is due before the “appointed day”, which is the day after 15 days have passed from acceptance or deemed acceptance. In practice an unwritten arrangement gives the buyer 15 days, not 45. Article 2 works through the clock in detail.

3. Three invoices, three outcomes

Each invoice below is for ₹10,00,000 from a small enterprise, delivered without any written objection, and unpaid at 31 March 2026 (the close of FY 2025–26).

Invoice C is the instructive one. Clause (h) is a timing rule that bites only where the late payment crosses a year-end. A buyer who treats it as a general penalty for lateness will over-estimate the risk on invoices paid late inside the year, and under-estimate it on invoices that are still open at 31 March.

4. What clause (h) does not do

•      It does not permanently disallow the expense. The deduction moves to the year of payment, so the cost is a tax-timing and cash-flow cost.

•      It does not touch interest under section 16. Section 23 of the MSMED Act separately denies a deduction for that interest (Article 3).

•      It does not apply to medium or large suppliers, which makes the supplier’s Udyam status on the date of supply the first fact to establish (Article 5).

5. Points to settle before you rely on a conclusion

Several scope questions are better answered from the current notified position and case law than from commentary: whether the clause reaches trading supplies, services and capital purchases in every case; how payments routed through an intermediary or a TReDS platform are treated (Article 9); and which date fixes the supplier’s status where registration is obtained mid-year. Tax-audit reporting of section 43B items should be checked against the current Form 3CD. The Income-tax Department’s page and the Finance Act text are the starting points, and secondary summaries are not a substitute.

6. A year-end routine that fits the clause

•      Run an invoice-level ageing against the section 15 deadline in the last week of March, not against a generic 60-day or 90-day bucket.

•      Pay first the invoices whose deadline falls on or before 31 March. Invoices whose deadline falls in the first days of April can be paid within that limit and still be deducted in the earlier year.

•      Confirm each supplier’s Udyam category and date of registration before classifying it as in or out of scope.

•      Tie the clause (h) schedule to the tax-audit disclosure and the return computation, so that all three show the same figure.