My supplier is a trader with Udyam registration. Does the 43B(h) disallowance apply to him?
No. The Ministry of MSME's memorandum confines the benefit of Udyam registration for wholesale and retail traders to Priority Sector Lending; the delayed-payment provisions of the MSMED Act, including s.15, are excluded. Since clause (h) works by reference to the s.15 time limit, purchases from traders fall outside it.
Decided by the CBDT Circulars & Instructions (Ministry of Micro, Small and Medium Enterprises, Policy Division, Government of India) on 2021-09-01, reported as OM No. 1/4(1)/2021-P&G/Policy; OM No. 5/2(2)/2021-E/P&G/Policy. It bears on section 43B(h), section MSMED Act 2006 s.2(e), section MSMED Act 2006 s.15 of the Income Tax Act 1961, in Deductions & Disallowances matters.
Traders were brought into Udyam registration in July 2021, and a Udyam number on a trader's invoice is now the commonest reason a clause (h) add-back gets made when it should not be. The memorandum is the answer to that: registration for these NIC codes buys lending benefits only. It cuts both ways — a trader-supplier cannot use the delayed-payment machinery against you, and you cannot be disallowed for paying him late.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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By Office Memorandum No. 5/2(2)/2021-E/P&G/Policy dated 2 July 2021 the Ministry of Micro, Small and Medium Enterprises decided to include retail and wholesale trade as micro, small and medium enterprises for the limited purpose of Priority Sector Lending, and allowed such enterprises to register on the Udyam Registration Portal under NIC codes 45 (wholesale and retail trade and repair of motor vehicles and motorcycles), 46 (wholesale trade except of motor vehicles and motorcycles) and 47 (retail trade except of motor vehicles and motorcycles); enterprises holding an Udyog Aadhaar Memorandum under those codes were allowed to migrate to the Udyam portal or register afresh. The Reserve Bank circulated that decision to banks a week later. A further Office Memorandum No. 1/4(1)/2021-P&G/Policy dated 1 September 2021 is said to have restated the limitation. Doubts then arose whether traders holding Udyam registration could invoke the delayed-payment machinery of the MSMED Act, and therefore whether payments to them attract disallowance under section 43B(h).
Retail and wholesale trade enterprises were brought within the micro, small and medium enterprise definition for the limited purpose of Priority Sector Lending, and were allowed Udyam registration under NIC codes 45, 46 and 47 for that purpose. The inference drawn from that limitation - that the delayed-payment provisions of the MSMED Act, and with them section 43B(h) of the Income-tax Act, do not reach a purchase from a wholesale or retail trader holding Udyam registration - is an administrative reading that has not been tested in court and that rests on a memorandum whose text could not be obtained. It should be stated as an argument, not as settled law.
Section 43B(h) operates by reference to the time limit in section 15 of the MSMED Act, which sits in the delayed-payment chapter. The argument runs that if retail and wholesale traders were admitted to the definition only for Priority Sector Lending, they never entered that chapter, so a buyer's payment to such a trader falls outside clause (h) whatever the trader's Udyam registration shows. The premise is established: the Ministry's decision of 2 July 2021, as circulated by the Reserve Bank, is expressly for the limited purpose of Priority Sector Lending. The conclusion is not: no CBDT instrument adopting it for section 43B(h) purposes was traced, no court has ruled on it, and the memorandum of 1 September 2021 said to spell out the limitation could not be read. Recodification does not change the position - section 43B(h) is carried into the Income-tax Act 2025 as section 37(2)(g), and section 37(3) preserves the same carve-out, so a sum payable to a micro or small enterprise beyond the section 15 time limit is not rescued by payment before the due date for the return, unlike every other sum in that section.
Ministry of Micro, Small and Medium Enterprises vide Office Memorandum (OM) No. 5/2(2)/2021-E/P & G/Policy dated July 2, 2021, has decided to include Retail and Wholesale trade as MSMEs for the limited purpose of Priority Sector Lending and they would be allowed to be registered on Udyam Registration Portal
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Handle my notice → Ask a CA on WhatsAppNo. The Ministry of MSME's memorandum confines the benefit of Udyam registration for wholesale and retail traders to Priority Sector Lending; the delayed-payment provisions of the MSMED Act, including s.15, are excluded. Since clause (h) works by reference to the s.15 time limit, purchases from traders fall outside it. This was decided by the CBDT Circulars & Instructions (Ministry of Micro, Small and Medium Enterprises, Policy Division, Government of India) and bears on section 43B(h), section MSMED Act 2006 s.2(e), section MSMED Act 2006 s.15 of the Income Tax Act 1961. It is reported as OM No. 1/4(1)/2021-P&G/Policy; OM No. 5/2(2)/2021-E/P&G/Policy. Traders were brought into Udyam registration in July 2021, and a Udyam number on a trader's invoice is now the commonest reason a clause (h) add-back gets made when it should not be. The memorandum is the answer to that: registration for these NIC codes buys lending benefits only. It cuts both ways — a trader-supplier cannot use the delayed-payment machinery against you, and you cannot be disallowed for paying him late. If it applies to you, the first step is this: Pull the supplier's Udyam certificate and check the registered activity, because the exclusion turns on the enterprise being in wholesale or retail trade rather than on its size.
By Office Memorandum No. 5/2(2)/2021-E/P&G/Policy dated 2 July 2021 the Ministry of Micro, Small and Medium Enterprises decided to include retail and wholesale trade as micro, small and medium enterprises for the limited purpose of Priority Sector Lending, and allowed such enterprises to register on the Udyam Registration Portal under NIC codes 45 (wholesale and retail trade and repair of motor vehicles and motorcycles), 46 (wholesale trade except of motor vehicles and motorcycles) and 47 (retail trade except of motor vehicles and motorcycles); enterprises holding an Udyog Aadhaar Memorandum under those codes were allowed to migrate to the Udyam portal or register afresh. The Reserve Bank circulated that decision to banks a week later. A further Office Memorandum No. 1/4(1)/2021-P&G/Policy dated 1 September 2021 is said to have restated the limitation. Doubts then arose whether traders holding Udyam registration could invoke the delayed-payment machinery of the MSMED Act, and therefore whether payments to them attract disallowance under section 43B(h). The matter was decided on 2021-09-01 by the CBDT Circulars & Instructions (Ministry of Micro, Small and Medium Enterprises, Policy Division, Government of India). On those facts the CBDT Circulars & Instructions held as follows. Retail and wholesale trade enterprises were brought within the micro, small and medium enterprise definition for the limited purpose of Priority Sector Lending, and were allowed Udyam registration under NIC codes 45, 46 and 47 for that purpose. The inference drawn from that limitation - that the delayed-payment provisions of the MSMED Act, and with them section 43B(h) of the Income-tax Act, do not reach a purchase from a wholesale or retail trader holding Udyam registration - is an administrative reading that has not been tested in court and that rests on a memorandum whose text could not be obtained. It should be stated as an argument, not as settled law.
Section 43B(h) operates by reference to the time limit in section 15 of the MSMED Act, which sits in the delayed-payment chapter. The argument runs that if retail and wholesale traders were admitted to the definition only for Priority Sector Lending, they never entered that chapter, so a buyer's payment to such a trader falls outside clause (h) whatever the trader's Udyam registration shows. The premise is established: the Ministry's decision of 2 July 2021, as circulated by the Reserve Bank, is expressly for the limited purpose of Priority Sector Lending. The conclusion is not: no CBDT instrument adopting it for section 43B(h) purposes was traced, no court has ruled on it, and the memorandum of 1 September 2021 said to spell out the limitation could not be read. Recodification does not change the position - section 43B(h) is carried into the Income-tax Act 2025 as section 37(2)(g), and section 37(3) preserves the same carve-out, so a sum payable to a micro or small enterprise beyond the section 15 time limit is not rescued by payment before the due date for the return, unlike every other sum in that section. In the words reproduced by the source cited on this page: "Ministry of Micro, Small and Medium Enterprises vide Office Memorandum (OM) No. 5/2(2)/2021-E/P & G/Policy dated July 2, 2021, has decided to include Retail and Wholesale trade as MSMEs for the limited purpose of Priority Sector Lending and they would be allowed to be registered on Udyam Registration Portal"
It was decided by the CBDT Circulars & Instructions on 2021-09-01 and is reported as OM No. 1/4(1)/2021-P&G/Policy; OM No. 5/2(2)/2021-E/P&G/Policy. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 43B(h), section MSMED Act 2006 s.2(e), section MSMED Act 2006 s.15, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Retail and wholesale trade enterprises were brought within the micro, small and medium enterprise definition for the limited purpose of Priority Sector Lending, and were allowed Udyam registration under NIC codes 45, 46 and 47 for that purpose. The inference drawn from that limitation - that the delayed-payment provisions of the MSMED Act, and with them section 43B(h) of the Income-tax Act, do not reach a purchase from a wholesale or retail trader holding Udyam registration - is an administrative reading that has not been tested in court and that rests on a memorandum whose text could not be obtained. It should be stated as an argument, not as settled law. It arises in Deductions & Disallowances matters, on section 43B(h), section MSMED Act 2006 s.2(e), section MSMED Act 2006 s.15 of the Income Tax Act 1961, and was decided by Ministry of Micro, Small and Medium Enterprises, Policy Division, Government of India. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Keep the certificate and the memorandum on the assessment file so the position is documented at the time of the return, not first raised in appeal. Where the supplier both trades and manufactures or renders services, separate the invoices rather than treating the whole account as outside clause (h). Do not push the point beyond traders — for a micro or small manufacturer or service provider, clause (h) applies in full.
Validity check could not be completed. The proposition this entry carries has not been tested. The Office Memorandum of 1 September 2021, No. 1/4(1)/2021-P&G/Policy, could not be found as a document in a subscription research database - a search on its file number returned only two commentary articles citing it. What was found is the earlier decision it is said to restate: RBI Circular No. FIDD.MSME & NFS.BC.No.13/06.02.31/2021-22 dated 7 July 2021 records that the Ministry decided by Office Memorandum No. 5/2(2)/2021-E/P&G/Policy dated 2 July 2021 to include retail and wholesale trade as MSMEs for the limited purpose of Priority Sector Lending, with Udyam registration under NIC codes 45, 46 and 47. No CBDT circular or notification adopting that limitation for section 43B(h) was traced, and no judicial decision on the point was found. Section 43B(h) itself is in force and is carried into the Income-tax Act 2025 as section 37(2)(g), with the carve-out in section 37(3) preserved for tax years beginning on or after 1 April 2026. The classification criteria for micro, small and medium enterprises are reported to have been revised in March 2025; that revision was not located in this pass and nothing read shows it altering the traders' position. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The position improves but does not close. The earlier memorandum is now corroborated from a primary instrument: the Reserve Bank's circular of 7 July 2021 recites the Ministry's Office Memorandum No. 5/2(2)/2021-E/P&G/Policy dated 2 July 2021 and records that retail and wholesale trade were included as MSMEs for the limited purpose of Priority Sector Lending, with registration on the Udyam portal under NIC codes 45, 46 and 47. Note what that changes: the limitation was in the July memorandum itself, not introduced later. The Office Memorandum of 1 September 2021 is still unobtained - a search on its file number returns only commentary citing it - so the sentence previously quoted here as its language has been replaced with the Reserve Bank's own words. Two cautions before using this. First, no CBDT instrument adopts the limitation for section 43B(h) and no court has ruled on it; the step from a Priority Sector Lending carve-in to non-application of a tax disallowance is an inference. Second, the scope of the exclusion is not settled on anything read here: whether a supplier whose Udyam registration covers trading together with a manufacturing or service activity falls outside clause (h) is contested in the commentary, so check what the supplier's Udyam certificate actually records before assuming the exclusion applies. On the provision itself, section 43B(h) becomes section 37(2)(g) of the Income-tax Act 2025, and section 37(3) keeps it outside the relief that allows other sums to be deducted if paid before the due date for the return. The Office Memorandum of 1 September 2021 has not been read, so its exact terms and any conditions in it are unknown. Nothing traced shows the CBDT adopting the traders' exclusion for section 43B(h), and no judicial decision on the point was found. Whether the exclusion survives where the supplier's Udyam registration records trading together with some other activity is an open question on the material available. The March 2025 revision of the classification criteria was not located, so its effect on who qualifies as a micro or small enterprise is not stated here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Retail and wholesale trade enterprises were brought within the micro, small and medium enterprise definition for the limited purpose of Priority Sector Lending, and were allowed Udyam registration under NIC codes 45, 46 and 47 for that purpose. The inference drawn from that limitation - that the delayed-payment provisions of the MSMED Act, and with them section 43B(h) of the Income-tax Act, do not reach a purchase from a wholesale or retail trader holding Udyam registration - is an administrative reading that has not been tested in court and that rests on a memorandum whose text could not be obtained. It should be stated as an argument, not as settled law.
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