The MSME 45-Day Payment Rule: What Buyers and Small Suppliers Need to Track
Published: 10/9/2026
Category: Tax
Pay a registered micro or small supplier late and the expense can be disallowed for tax. What the rule says, who it covers, and simple systems for both buyers and MSME sellers.
India's income-tax rules discourage paying small suppliers late. If you buy from a micro or small enterprise registered under Udyam and pay later than allowed, 15 days without a written agreement, or the agreed period up to a maximum of 45 days, the unpaid amount can be disallowed as an expense for that year. This rule, introduced as section 43B(h) of the 1961 Act, continues under the Income-tax Act, 2025 with new numbering.
Who the rule covers
| Question | Answer |
|---|
| Which suppliers? | Micro and small enterprises registered on Udyam. Medium enterprises are not covered. |
| Which buyers? | Businesses claiming the purchase as a business expense |
| Payment deadline | 15 days from acceptance of goods/services without a written agreement; the agreed period with one, but not more than 45 days |
| Consequence of late payment | The amount can be disallowed in that year and allowed in the year it is actually paid |
Why it matters at year end
If an MSME invoice from February is still unpaid on 31 March and is past its deadline, the expense may not reduce your profit for that year. Your tax goes up even though your costs did not change.
For buyers: a simple system
- Tag MSME suppliers. Ask suppliers for their Udyam registration and record whether they are micro, small or medium.
- Put payment terms in writing, up to 45 days, in purchase orders or agreements.
- Track due dates from acceptance, not from when the bill reached accounts.
- Run a weekly "MSME due" report and prioritise those payments.
- Review before 31 March with your CA.
For MSME suppliers: use the rule fairly
- Share your Udyam certificate with buyers and print your Udyam number on invoices.
- State payment terms on quotes and invoices.
- Send reminders before the due date, politely mentioning the terms.
- Keep delivery or acceptance proof, because the period runs from acceptance.
Common mistakes
- Treating all suppliers as MSMEs, or none
- Counting days from the bill date instead of acceptance
- Agreeing "60 days" in writing, which does not extend the 45-day maximum for this rule
Where BizFlow fits
BizFlow's purchase and accounting apps record each supplier's MSME status and terms, show due dates and produce an "MSME payments due" report, while sales invoices for MSME sellers can carry the Udyam number. See AccountFlow.
General information, not tax advice.
Frequently asked questions
Q: Does the 45-day rule apply to medium enterprises?
A: No. It covers micro and small enterprises registered on Udyam.
Q: What if I pay an MSME supplier after 45 days?
A: The expense can be disallowed in that year and allowed in the year you actually pay. Check the impact with your CA.
Sources
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