One of the most consequential recent changes for Indian supply chains is a tax provision. Section 43B(h) of the Income-Tax Act, introduced by the Finance Act 2023 and effective from AY 2024-25 (FY2023-24), ties a buyer's tax deduction to paying its Udyam-registered small suppliers on time.
What the rule actually says
If a buyer owes a registered micro or small enterprise for goods or services, the amount is only deductible in the year it is paid — unless it is settled within the window set by Section 15 of the MSMED Act: 45 days where there is a written agreement, 15 days where there is none. Miss the window, and the expense can't be claimed until payment is made. It applies to suppliers registered as manufacturers or service providers — not traders — and the MSMED Act also carries compound interest on delayed payments.
Why it changes behaviour
For the first time, paying a small supplier late has a direct, mechanical tax cost for the buyer. That sharpens the incentive to settle MSME dues quickly — and makes the status of a counterparty (is this supplier a registered micro or small enterprise?) a number the finance team now needs to get right.
The link to receivables finance
A faster, more certain payment cycle is exactly the environment where receivables finance works. But it raises the premium on verification: knowing a supplier's MSME classification, confirming the invoice and acceptance, and checking the receivable isn't already financed elsewhere. Model the deadline and disallowance window with our free 43B(h) payment-timeline calculator, and see the wider picture in The MSME Growth Gap.
This article is general information, not tax advice; confirm specifics with a qualified professional.