At a glance
- •Applies to Micro and Small suppliers only
- •45-day clock (15 if no written contract)
- •Disallowance hits FY 25-26 ITR for unpaid balances at 31-Mar
- •Allowed in the year of actual payment
- •Capex, disputed dues, Medium suppliers — excluded
Section 43B clause (h) inserted by Finance Act 2023 requires that payments to suppliers registered as Micro or Small under the MSMED Act be made within 45 days (or 15 days if no written agreement). Any amount payable as on 31 March that exceeds this period is disallowed for that financial year and allowed in the year of actual payment.
Key clarifications from CBDT Circular 5/2026: the rule applies only to traders/manufacturers/service providers registered on the Udyam portal as Micro or Small (NOT Medium). It does not cover capital expenditure or amounts that you have disputed in writing within 15 days. The 45-day clock starts from the day of acceptance of goods/services or deemed acceptance (15 days from delivery if no objection).
Maintain a vendor master with Udyam category and a 'days outstanding' report at 31 March to compute the disallowance for ITR.