The MSME 45-Day Payment Rule: What Businesses Should Know

Buyers who purchase goods or services from enterprises registered as Micro or Small under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 are generally expected to settle payment within a defined timeline: up to 45 days where there is a written agreement specifying the period, and a shorter default period where there is no such agreement, under Section 15 of the MSMED Act.

Separately, an income-tax provision (Section 43B(h) of the Income Tax Act, 1961, introduced by the Finance Act, 2023, applicable from Assessment Year 2024-25 onward) generally disallows a buyer's deduction for amounts payable to a Micro or Small enterprise until the year the payment is actually made, if payment falls outside the MSMED Act's timeline — even on an otherwise-accrual basis. This is a general summary of a complex provision with exceptions and transitional detail; it is not tax advice.

For a business issuing invoices, purchase orders or delivery challans to (or receiving them from) an MSME-registered counterparty, tracking the agreed payment period and the actual payment date matters for both commercial and tax reasons. Confirm current thresholds, exceptions and effective dates with a qualified tax professional before relying on this for a filing position.