Invoice & Agreement Parameters
Income Tax Section 43B(h) Compliance Notice
As per Finance Act 2023, any sum payable by a buyer to a micro or small enterprise beyond the 15/45 day limit is disallowed as a business expense deduction in computing taxable profits for that financial year, and is taxed as business income in the year of non-payment.
Samadhan Settlement SummarySec 16 Compounded
Total Payable Amount
Principal + Compound Interest
Frequently Asked Questions on MSME 45-Day Rule & Samadhan Recovery
What is the 45-Day Payment Rule for MSMEs Under Section 15 of MSMED Act?
Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 mandates that buyers procuring goods or services from registered micro and small enterprises must make payment within the agreed credit period, which cannot exceed 45 days from the date of acceptance or deemed acceptance. If there is no written agreement, the statutory credit limit defaults strictly to 15 days. Failure to pay within this timeframe triggers penal compound interest at three times the RBI bank rate.
| Enterprise Classification | Max Credit Period Allowed | Legal Consequence of Delay |
|---|---|---|
| Micro & Small Enterprises | Max 45 days (with agreement) / 15 days (without agreement) | 3x RBI repo rate monthly compound interest + Sec 43B(h) disallowance |
| Medium Enterprises | Governed by normal commercial contract terms | Standard civil contract remedies (Interest as per agreement) |
How Does Income Tax Section 43B(h) Treat Unpaid MSME Invoices?
Introduced via the Finance Act 2023, Section 43B(h) of the Income Tax Act provides that any sum payable by an enterprise to a micro or small supplier beyond the statutory 15 or 45-day threshold is strictly disallowed as a deduction for computing business profits. The disallowed amount is added back to the buyer's taxable income for that financial year and taxed accordingly, even if paid in subsequent years.
| Payment Condition | Tax Deduction Status | Fiscal Year Impact |
|---|---|---|
| Paid within 15 / 45 days | Fully Allowed as Business Expense | Deductible in year incurred |
| Unpaid beyond 15 / 45 days at year-end | Disallowed & Added to Taxable Profits | Taxed in the current financial year |