In order to promote timely payment to Micro & Small Enterprise by corporate, Union Budget 2023 has proposed that any payment to Micro & Small Enterprise would be allowed only on actual payment as per due date prescribed under the MSMED Act.


In addition, the proposed amendment does not cover Medium Enterprise as the language mentioned in the newly proposed clause (h) refers only to “micro or small enterprise” in line with Chapter V of MSMED Act.


The extract of proposed amendment to Section 43B by way of insertion of new clause (h) which post enactment would be read as below:




43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—


*“(h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006,”;


shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :


Provided that nothing contained in this section *“[except the provisions of clause (h)]” shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with the such return.


Proposed amendment

Reading above provision along with Proviso below can be the possible interpretation:


Payment Made as per MSMED ACT #

  • NO: 43B Applicable
  • YES: 43B NOT Applicable


# Section 15 of the MSMED Act mandates payments to micro and small enterprises within the time as per the written agreement, which cannot be more than 45 days. If there is no such written agreement, the section mandates that the payment shall be made within 15 days of delivery of goods or provision of services.




As per above it seems potential impact for Corporates for the expense incurred during the previous year would be for the amount outstanding to MSME on the last date of previous year i.e. March 31st.


Let us understand the same by the help of example


Invoice Date: 1st Mar 2024

Payment Terms, as per written agreement within 45 days.

  • Scenario 1: Payment made on 30th March 2024 (within 45 days)
  • Scenario 2: Payment made on 10th April 2024 (within 45 days but in next FY)
  • Scenario 3: Payment made on 15th May 2024 (beyond 45 days & in next FY)


Since in Scenario 1 & 2 payment is done within the due date as per the MSMED Act, thus, 43B should not be applicable and expenses would be allowed in the same previous year.

In above example suppose the invoice date was 1st Jan 2024 & payment was made on 25th March 2024 although the payment is not per the MSMED Act, but as per the Section 43B the expense would be allowed in previous year in which payment is made thus it would be allowed in FY 2023-24 itself.


Also in case, the payment to Micro & Small Enterprise is delayed beyond the due date as per MSED Act, the taxpayer need to pay the compound interest with monthly rest as per Section 16 of MSMED Act. The interest so paid would also be disallowed expense.


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The above proposal would be very helpful for the MSE’s as it would help them in realizing their payment within the due dates and maintain their working capital needs, but how the Corporates would react to such provision in their dealing with MSE’s has to be seen in future as it would impact their cash flow and burden them with additional compliances and would it be good reason for them stay away from MSE’s.