Section 43B(H) Of The Income Tax Act And MSME Payments: Interpreting The Fine Print

The Finance Act 2023 introduced clause (h) in section 43B of the Income-tax Act, 1961, with a laudable objective of helping micro and small business enterprises recover their dues faster and improve their cash flows. The provision is made for allowance of expenses that are paid beyond the prescribed time limit only upon actual payment. However, this provision has resulted in a number of issues, as the allowance of expenses under the Income-tax Act is subject to provisions of the other Act, namely, Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). Recently, in March 2025, the criteria for the classification of Micro, Small, and Medium Enterprises have been revised, widening its coverage. This article deals with various interesting aspects of section 43B(h) as well as the relevant provisions of the MSMED Act.

INTRODUCTION

Recent Notification No. S.O. 1364(E) dated 21st March, 2025, issued by the Ministry of Micro, Small and Medium Enterprises (MSMEs) in line with various other initiatives for the MSME industry declared by the government in Budget 2025, brought about a significant revision in the criteria for the classification of Micro, Small, and Medium Enterprises, altering the thresholds for investment and turnover that determine MSME status. These changes have expanded the coverage of enterprises falling within the MSME definition,