Section 43B(h) & MSME vendor compliance

Pay MSMEs on time.
Keep every rupee deductible.

Section 43B(h) disallows any expense owed to a Micro or Small enterprise that isn't paid within 15 or 45 days. We find every MSME in your vendor base, verify them in real time and build the payment discipline that keeps you compliant.

Request a compliance review How the audit works

The statutory clock

45days

Day 0
Goods / services accepted
Day 15
Deadline without a written agreement
Day 45
Hard cap, even with an agreement

Miss it and the expense is added back to taxable income for the year.

01 · Section 43B(h) mechanics

A deduction that now depends on when you pay.

Clause (h) was inserted into Section 43B of the Income-tax Act, 1961 by the Finance Act, 2023, effective from Assessment Year 2024-25 (payments relating to FY 2023-24 onward). It denies a deduction for any sum payable to a Micro or Small Enterprise — Medium is excluded — for goods or services, unless payment is actually made within the time limit under Section 15 of the MSMED Act, 2006.

Scenario	Statutory deadline
No written agreement	15 days from acceptance / deemed acceptance
Written agreement	Agreed date, capped at 45 days
Consequence of breach	Expense disallowed for the year; deduction shifts to the year of actual payment.

Why this bites harder than ordinary 43B items

The usual Section 43B relief — deduct if paid by the return due date — is expressly excluded for clause (h). Miss the 15/45-day window and the amount is added back to taxable income for that year, full stop, regardless of when the return is filed.

3×

Section 16 of the MSMED Act separately imposes compound interest at three times the RBI-notified bank rate on delayed payments — and it is not tax-deductible.

Supplier-led

Only a Udyam-registered Micro or Small supplier triggers these provisions. The buyer's own MSME status is irrelevant.

Deadline checker

When must this invoice be paid?

Date goods / services accepted

Written payment agreement?

Pay on or before25 Feb 2024

15 days from acceptance.

If still unpaid at financial-year end (31 Mar 2024), the amount is added back to that year's income — paying before the return is filed does not help.

Applies only where the supplier is a Udyam-registered Micro or Small enterprise.

Indicative only. Deemed-acceptance rules and disputed supplies can change the start date.

Worked example

₹50L payable to a Udyam-registered small supplier, goods accepted 10-Feb, no written agreement — due by 25-Feb. If unpaid on 31-Mar, the full ₹50L is added back to that year's income, even if paid on 15-Apr before the tax audit is signed off. The deduction moves to the next year.

02 · TReDS

What TReDS actually changes — and what it doesn't.

On TReDS, the seller (or buyer, under reverse factoring) uploads the invoice as a Factoring Unit; financiers bid, and the MSME is paid early, net of discount, by the financier. The buyer still owes the invoice amount on the original due date — the payee simply changes from the MSME to the financier.

We say it plainly

TReDS is not a statutory exemption from Section 43B(h).

It is an RBI-regulated receivables-financing mechanism. Routing an invoice through TReDS doesn't shift your legal payment obligation in a way that changes the 15/45-day clock, and it doesn't create a tax exemption. Advisors who pitch it as one expose both themselves and their clients. Here is the accurate value case.

Forces payment discipline

Once a buyer accepts a Factoring Unit it becomes a confirmed, time-stamped obligation. Settlement to the financier on the due date is enforced by the platform — structurally reducing the drift that causes 43B(h) breaches.

Clean audit trail

Acceptance date, invoice amount and settlement date are all logged electronically — exactly the evidence a tax auditor needs to substantiate timely payment under Section 15 of the MSMED Act.

Decouples cash flow from compliance

The buyer can negotiate longer commercial credit with the financier while the MSME is still paid inside the statutory window — supporting compliance without straining working capital.

Onboarding is via RBI-licensed platforms such as RXIL, M1xchange and Invoicemart. Buyers meeting prescribed turnover and other criteria also carry independent MSME disclosure obligations under the Companies Act — TReDS records help satisfy them.

03 · MSME vendor audit & flagging

A missing Udyam number on the invoice doesn't take a vendor off the clock.

Generic audits flag only vendors whose invoices carry a Udyam Registration Number. From years of working with MSMEs, we know many never print it.

It doesn't matter. The regulation is clear: if the supplier was registered on the MSME portal before raising the invoice, the rule applies. Nothing exempts an invoice because the Udyam number is missing. That is why we verify every vendor directly — with an AI-first system built for this audit.

1
Vendor master extraction
We work with any ERP or enterprise system your company uses and pull the complete vendor and payables ledger — not just the vendors whose invoices happen to show a Udyam number.
2
WhatsApp outreach
Each vendor receives a WhatsApp message explaining that we are contacting them on your behalf as part of an MSME audit, with a link to schedule a short call with our AI voice agent.
3
AI voice verification
Our voice agent calls at the time the vendor chooses and asks only two questions: the name of their entity, and whether that entity holds a Udyam registration. No sensitive data is requested.
4
Human consultant fallback
If a vendor has not scheduled a call within two days of the WhatsApp outreach, the system automatically books a call with a human consultant who asks the same two questions.
5
Real-time ranking & flagging
Every response is authenticated in real time. Vendors are ranked and flagged by MSME status, so your payables team knows exactly which invoices sit on the 15/45-day clock.

questions only — entity name and Udyam status

48h

before a human consultant automatically steps in

Any ERP

or enterprise system your company already uses

04 · The compliance retainer

One retainer. Every MSME invoice inside the window.

MSME vendor audit & flagging

The AI-first verification programme above, run across your entire vendor base and refreshed as new vendors are onboarded.

Payment-deadline discipline

Acceptance dates and statutory due dates mapped against your payment runs, so Micro and Small supplier invoices are cleared inside the window.

TReDS implementation

Onboarding onto RBI-licensed platforms such as RXIL, M1xchange and Invoicemart, and designing the acceptance workflow around your ERP.

Audit-ready evidence

A clean, time-stamped record of vendor status and payment dates to support your tax audit and MSME disclosure obligations.

05 · The people behind 45flowadvisors

Lawyers, engineers and founders who have lived the MSME cash-flow problem.

Founder

Jasraj Bhowmik

LinkedIn profile

A lawyer by profession, an entrepreneur by passion.

Jasraj’s journey began in his first year of college, when he launched Maximize — a crypto platform that let content creators launch their own coin so that fans who believed in them could invest. He was also one of the founding team members of his university’s incubation centre, CIIC. In his second year he represented the startup and the university at IIT Kanpur, winning 3rd place at UpStart, the flagship pitching event of E-Summit. Lacking product–market fit, he chose to close it.

In his third year he founded Clar Catalyst after seeing a structural gap: 64% of Indian MSMEs are in manufacturing and trading, where extending credit to customers is their moat against larger players with better pricing. Those same MSMEs carry heavy bad debts yet rarely take legal action, believing it only adds to the loss. Partnering with a senior Mumbai advocate specialising in bad-debt recovery, he mechanised recovery techniques that resolved disputes without going to court, using the ADR mechanisms provided by the government.

Clar Catalyst operated as a legal-financing firm — 1% upfront as a due-diligence fee and 20–30% on recovery. By the start of his fourth year it had opened its first office in Patparganj, Delhi, and onboarded a co-founder from an Advocate-on-Record’s practice, bringing in a team of expert advocates and designated senior advocates. By the fifth year it was managing around ₹4 crore of bad debt. Self-funding every case strained cash flow, and investors in India remained wary of prolonged litigation, so the firm was wound down — an experience that now shapes how 45flowadvisors helps companies pay MSMEs on time.

3rd place: UpStart, E-Summit IIT Kanpur
₹4 Cr: MSME bad debt managed at Clar Catalyst
Founding team: CIIC university incubation centre

Senior Consultant

Rajat Kumar Mala

LinkedIn profile

An engineer-cum-lawyer turned entrepreneur.

Rajat is Co-Founder & Director of Aqin Biotech, a VC-backed startup in feed manufacturing, biotechnology and next-generation protein engineering. He is also the founder of a full-stack Voice AI agent company that bridges the gap between automation and authentic human interaction, delivering measurable ROI for enterprise partners — part of the Government’s Action for India startup cohort.

He has worked at the grassroots, mentoring and playing an active role in the Self-Help Group (SHG) empowerment programme organised by IIT. He started BadiDi, a non-profit initiative and India’s first Voice AI for SHGs and FPOs — more than an AI, a partner in growth. She is learning the nuances of rural India’s local dialects, serves as a two-way bridge between the government, the market and SHGs, and is proving that impact and high-tech are not mutually exclusive. Her launch was covered by a major media channel in Assam.

Co-Founder & Director: Aqin Biotech (VC-backed)
Action for India: Voice AI startup cohort
BadiDi: India’s first Voice AI for SHGs & FPOs

06 · Get started

Find out which of your vendors are on the clock.

Tell us a little about your vendor base and systems. We'll come back with a scoped MSME audit and a view on where your 43B(h) exposure sits before year-end.

No change to your ERP required
Vendors are asked only two questions
Audit-ready evidence for your tax auditor

Pay MSMEs on time.Keep every rupee deductible.