Applicability

This clause is applicable when an enterprise is buying goods or taking services from Micro and Small enterprise registered under the MSMED Act, 2006.

Any manufacturing enterprise or enterprise rendering services (Micro means Investment upto 1 crore and Turnover upto 5 crore)
(Small means Investment Upto 10 crore and Turnover upto 50 crore)

Trading concern are not covered by this Section

As per Office Memorandum No. 5/2(2)/2021-E/P and G/Policy dated July 2, 2021, wholesale and retail traders are entitled to Udyam registration only for the benefit of Priority Sector Lending.
So, Section 43B(h) is not applicable for due outstanding to traders as per the MSMED Act’s definition of enterprise.

Effective Date

Section 43B Clause (h) is applied from April 1, 2024. This amendment applies from assessment year 2024-25.

Time Limit for Payment

If No Written agreement entered

15 days from the date of acceptance of any goods or services.

If Written agreement entered 45 days or Days mentioned in Written agreement (from the date of acceptance of any goods or services) whichever is lower.

Penalties / Disallowance of Expense for Failure to Pay MSMEs

• Under Income Tax Act,1961: Any sum payable by the assesse to a Micro & Small Enterprise beyond the time limit specified in Section 15 of the MSMED Act shall be allowed as a deduction only in the previous year in which the sum has been actually paid (irrespective of the accounting method employed).
• Under MSMED Act, 2006: Compound interest at the 3 times the bank rate notified by the Reserve Bank of India (RBI).

Further The deduction of this interest paid under MSMED Act, 2006 for such default is not allowed as an expense, as per the Income-tax Act, 1961.