### What is Section 43B(h)?
Inserted into the Income Tax Act to support small enterprises, Section 43B(h) provides that any sum payable by an assessee to a registered Micro or Small enterprise beyond the time limit specified in Section 15 of the MSMED Act, 2006 shall be allowed as a business tax deduction **only in the financial year in which such sum is actually paid**.
Statutory Payment Timelines under MSMED Act
Under Section 15 of the MSMED Act:
* **Where No Written Agreement Exists:** Payment must be executed within **15 days** from the date of delivery or acceptance of goods or services. * **Where a Written Agreement Exists:** Payment can be scheduled as agreed upon in writing, but **cannot exceed 45 days** from the date of acceptance.
Impact on Year-End Income Tax Computations
If an expense payable to a registered Micro or Small supplier remains outstanding at the end of the financial year beyond the 15/45-day window:
1. The unpaid invoice amount is **disallowed** and added back to taxable business profits for that financial year. 2. Higher income tax must be paid for that financial year on the disallowed amount. 3. The deduction can only be claimed in the subsequent financial year when actual payment is made.
Who is Covered under the Law?
The rule applies exclusively to registered **Micro and Small enterprises** engaged in manufacturing or service activities holding a valid Udyam Registration Certificate. Medium enterprises and wholesale/retail traders are currently excluded from Section 43B(h) disallowance provisions.