Impact of Section 43B(h) on MSMEs

Section 43B(h) of the Micro Small and Medium Enterprises Development (MSMED) Act 2006 in India instruction that buyers of goods or services from micro small and medium enterprises (MSMEs) must make payments within a required timeframe. This section was introduced to address the issue of delayed payments faced by MSMEs which can roundly affect their working capital and overall financial health.

One of the significant challenges MSMEs encounter is the extended duration between delivering goods or services and receiving payments from their buyers. This delay in payments can disrupt their cash flow hinder their ability to meet operational expenses and even jeopardize their viability. Section 43B seeks to mitigate these challenges by imposing a statutory obligation on buyers to adhere to prescribed timelines for settling their dues to MSME suppliers.

The provision stipulates a 45-day payment window from the date of acceptance or deemed acceptance of goods or services. This timeframe is crucial for MSMEs as it ensures predictability and stability in their cash flows enabling them to plan their operations and investments more effectively.

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The key provisions of Section 43B include:

➧Payment timeline: 

Buyers are required to make payments to MSME suppliers within 45 days from the date of acceptance or the deemed acceptance of goods or services.The buyer will be legally obligated to pay compound interest with monthly rests to the supplier on the outstanding amount if they do not make their payment within this time frame.

➧Interest on delayed payments: 

If the buyer fails to make the payment within the specified timeframe they are liable to pay compound interest to the supplier at three times the bank rate notified by the Reserve Bank of India (RBI). This interest is calculated on the amount due from the date of acceptance or the deemed acceptance of goods or services until the date of actual payment.

➧Responsibility of the buyer: 

The responsibility of ensuring timely payment rests with the buyer and any failure to comply with the provisions of Section 43B can lead to legal consequences.

➧Dispute resolution: 

If there is any dispute regarding the amount of interest payable under this section it must be referred to the Micro and Small Enterprises Facilitation Council (MSEFC) constituted by the respective State Governments. The MSEFC will then examine the matter and pass necessary orders to pay the interest due.


➧Provide clear definitions: 

To reduce ambiguity it can be helpful to define "Due date" for "MSME" and to clarify its application in cases of partial payments and extraordinary circumstances.

➧Implement a grace period: 

Allowing for a fair grace period to address unforeseen circumstances or disputes can provide flexibility and equitable implementation.

➧Incentivize timely payments: 

Instead of depending just on disallowances additional incentives could be introduced to encourage quick payments such as tax credits or expedited depreciation.

➧Simplify compliance: 

Streamlining record-keeping requirements and providing online tools for compliance can ease the burden on businesses.


In conclusion the impact of Section 43B(h) on Micro Small and Medium Enterprises (MSMEs) has been significant. While the provision was intended to streamline tax compliance and promote financial discipline among businesses its implementation has posed challenges for MSMEs. The strict requirements for the deduction of certain expenses particularly those related to legal dues have imposed additional financial burdens on these enterprises. This has led to liquidity constraints and operational hurdles hindering the growth and sustainability of MSMEs. 

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