Pay your small suppliers in time, or lose the tax deduction (Section 43B(h))

If your business buys from small suppliers, there is a tax rule that can quietly increase your tax bill: Section 43B(h). It is simple to follow once you understand it, and it only bites if you pay late.

The basic rule

If your supplier is a micro or small enterprise registered under Udyam, you must pay them within a set time. If you do not, the law does not let you claim that purchase as an expense in that year. The deduction is pushed to the year you actually pay. In the meantime, your taxable profit, and your tax, go up.

How much time do you get?

The clock is counted from the date you receive the goods or service, not the invoice date.

1. If there is no written agreement, you have 15 days.
2. If there is a written agreement, you have the agreed period, but never more than 45 days.

So the longest you ever get is 45 days, and only if you have a written agreement that says so.

Who this applies to

Three points decide whether a bill is caught:

1. Only micro and small suppliers. Medium enterprises are not covered.
2. The supplier must actually be Udyam-registered as micro or small. If they are not registered, the rule does not apply.
3. Traders are excluded. The rule covers manufacturers and service providers, not pure traders.

Imports are also outside the rule, because overseas suppliers cannot hold Udyam registration.

The trap most people miss

For most other expenses, if you pay before your return due date, you still get the deduction. That relief does not apply here. If the payment crosses into the next financial year, paying in April, May, or June will not save this year's deduction. The only thing that saves it is paying within the 15 or 45 day window.

What to do now

1. Ask your regular suppliers whether they are Udyam-registered, and keep their declarations on file.
2. Flag micro and small suppliers in your books and watch their due dates.
3. At year-end, list anything still unpaid past the window, so there are no surprises in your tax audit (it is reported in Form 3CD, clause 22).

Note: for the year starting 1 April 2026, the same rule continues under the new Income-tax Act, 2025, so it is not going away.

Not sure which of your suppliers are caught, or how much is at risk this year? Get a quote and we will review your creditor list and tell you exactly where you stand.

Related reading on our site: GSTR-9 annual return, and our GST registration guide.

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