The rules governing payments to registered Micro and Small Enterprises have tightened considerably, and large enterprises are bearing the compliance weight. These changes are designed to improve liquidity for smaller entities whilst imposing stricter obligations on their corporate counterparts.

Section 43B(h) of the Income Tax Act, now entering its second full year of enforcement, is the provision finance teams cannot afford to treat casually any longer. Tax auditors are actively flagging non-compliance in Form 3CD, and the Income Tax Department's Centralised Processing Centre is automatically adding back disallowed amounts on processing. The practical implications for finance functions are as follows:

  • Payments must be settled within forty-five days where a written agreement exists. Any contractual clause specifying a longer credit period, whether sixty or ninety days, is void under the MSMED Act, 2006. The forty-five day ceiling is absolute.
  • In the absence of a formal written contract, the statutory limit is reduced to fifteen days from the date of acceptance of goods or services.
  • Any payment delayed beyond these windows is disallowed as a business expenditure in the year of accrual. The provision applies only to suppliers registered as Micro or Small Enterprises under the MSMED Act. The buyer's own registration status is irrelevant.
  • Deductions for such delayed payments are only permitted in the financial year in which the actual payment is made. This is not a temporary timing difference. It is a cash tax liability arising in the current year.

The Union Budget 2026 has introduced complementary measures on the MSME support side. The Rs 10 lakh per consignment value cap on courier-based exports has been removed entirely, effective 1 April 2026, allowing artisans, start-ups and direct-to-consumer exporters to ship higher-value goods through courier channels without diverting to conventional cargo. Additionally, Budget 2026 has introduced a CGTMSE-backed credit guarantee mechanism specifically for invoice discounting through the TReDS platform, improving working capital access for MSME suppliers by making their trade receivables eligible for guaranteed financing.

The Practical Impact

For boards and large enterprises, these changes together require an immediate review of vendor master data to identify all registered MSME suppliers, a restructuring of payment cycles to align with the fifteen and forty-five day mandates, and a year-end sweep of outstanding MSME payables before books are closed. Failure to comply carries a dual consequence: tax disallowance on the principal amount and compound interest at three times the RBI bank rate under Section 16 of the MSMED Act, which is itself non-deductible. Professional diligence in documenting acceptance dates and written agreements is now a prerequisite for maintaining institutional tax efficiency.