In the Rajya Sabha, the Minister of State in the Ministry of Finance, Shri Pankaj Chaudhary, on 21 July 2026, informed that Section 43B(h) of the Income-tax Act provides for tax deduction on payments due to micro and small enterprises only on an actual-payment basis when such payments are made beyond the prescribed timeline.
The information was provided in a written reply to Rajya Sabha Unstarred Question No. 242, titled “Section 43B(h) of the Income Tax Act.”
The Minister stated that Section 43B(h) was introduced through the Finance Act, 2023. The corresponding provision is contained in Section 37(2)(g) of the Income-tax Act, 2025.
Under the provision, any amount payable by an assessee to a micro or small enterprise beyond the time limit specified under Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 is allowed as a deduction only when the payment is actually made, rather than when the liability is incurred. The prescribed payment period cannot exceed 45 days.
Shri Pankaj Chaudhary informed the House that the Ministry of Micro, Small and Medium Enterprises has undertaken several measures to improve credit flow and ensure timely payments to MSMEs. Section 43B(h) supports this objective by withholding tax deduction from buyers until payments to micro and small enterprises are actually made within the framework of the statutory timeline.
The provision applies to amounts payable to enterprises classified as micro or small enterprises under the MSMED Act, 2006.
The Minister further stated that the provision was introduced after detailed and extensive consultations with stakeholders, including the Ministry of Micro, Small and Medium Enterprises.
Its objective is to address cash-flow difficulties faced by micro and small enterprises, improve their working-capital position and help them avoid the additional cost of arranging short-term funds due to delayed payments.
The Unstarred Question can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/07/RS-SECTION-43BH-OF-THE-INCOME-TAX-ACT-21.07.2026.pdf
