Chartered accountants body explains that delayed payments to MSMEs beyond timelines may lead to loss of tax deductions under Section 43B(h) for FY 2025-26.
Coimbatore:
Businesses failing to make timely payments to Micro and Small Enterprises (MSMEs) may lose income tax benefits under Section 43B(h) of the Income Tax Act, according to guidance issued by the Tamil Nadu and Puducherry Chartered Accountants Association.
Association secretary Jalapathi stated that as the financial year 2025–26 draws to a close, companies must ensure that dues to MSME vendors are cleared within the prescribed timelines to claim tax deductions for the current financial year.
Section 43B(h), linked with provisions of the MSMED Act, 2006, mandates that payments to Micro and Small enterprises must be made within a defined period. If payments are delayed, the expense cannot be claimed as a deduction in the same financial year and can only be accounted for in the year of actual payment.
As per the rules, if there is a written agreement with the vendor, payment must be made within 45 days from the invoice date. In the absence of a written agreement, the payment window is restricted to 15 days. Any delay beyond these timelines may result in denial of tax benefits for that financial year.
The provision applies only to Micro and Small enterprises registered under MSME norms. Medium enterprises are excluded, and traders registered under Udyam are also not covered under this rule.
Explaining with an example, the association noted that if a company makes a purchase worth ₹3 lakh from a small enterprise in June 2025 and fails to clear the dues before March 31, 2026, the expense will not be allowed as a deduction for FY 2025–26. This could result in additional tax liability depending on the applicable tax rate.
Businesses have been advised to immediately identify MSME vendors, verify their Udyam registration status, and prioritise clearing outstanding dues, especially those pending beyond 45 days. Maintaining proper documentation and updating financial records before the end of the financial year has also been emphasised.
Experts have urged taxpayers to consult their financial advisors for case-specific guidance, noting that tax compliance requirements may vary depending on individual business circumstances.
Businesses failing to make timely payments to Micro and Small Enterprises (MSMEs) may lose income tax benefits under Section 43B(h) of the Income Tax Act, according to guidance issued by the Tamil Nadu and Puducherry Chartered Accountants Association.
Association secretary Jalapathi stated that as the financial year 2025–26 draws to a close, companies must ensure that dues to MSME vendors are cleared within the prescribed timelines to claim tax deductions for the current financial year.
Section 43B(h), linked with provisions of the MSMED Act, 2006, mandates that payments to Micro and Small enterprises must be made within a defined period. If payments are delayed, the expense cannot be claimed as a deduction in the same financial year and can only be accounted for in the year of actual payment.
As per the rules, if there is a written agreement with the vendor, payment must be made within 45 days from the invoice date. In the absence of a written agreement, the payment window is restricted to 15 days. Any delay beyond these timelines may result in denial of tax benefits for that financial year.
The provision applies only to Micro and Small enterprises registered under MSME norms. Medium enterprises are excluded, and traders registered under Udyam are also not covered under this rule.
Explaining with an example, the association noted that if a company makes a purchase worth ₹3 lakh from a small enterprise in June 2025 and fails to clear the dues before March 31, 2026, the expense will not be allowed as a deduction for FY 2025–26. This could result in additional tax liability depending on the applicable tax rate.
Businesses have been advised to immediately identify MSME vendors, verify their Udyam registration status, and prioritise clearing outstanding dues, especially those pending beyond 45 days. Maintaining proper documentation and updating financial records before the end of the financial year has also been emphasised.
Experts have urged taxpayers to consult their financial advisors for case-specific guidance, noting that tax compliance requirements may vary depending on individual business circumstances.