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Income-tax Act, 2025High impact for ecommerce sellers

MSME payments: deduction only when paid within the MSMED Act time limit (Section 37(2)(g))

Reviewed by CA Apurav GargSummary reviewed

Document
Income-tax Act, 2025: Section 37(2)(g) (earlier Section 43B(h) of the 1961 Act)
Issued
1 Apr 2026
Effective
2026-04-01 (Section 43B(h) applied from AY 2024-25 under the 1961 Act)
Issued by
Parliament of India (text as published by CBDT)
Official PDF(opens in a new tab)

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On this page

What it means for ecommerce sellers

If you owe money to a micro or small enterprise and do not pay it within the time limit in section 15 of the MSMED Act, 2006 (the agreed date, which cannot be more than 45 days, or 15 days where there is no agreement), the expense is allowed only in the tax year in which you actually pay. Unlike most items in Section 37(2), paying before the return due date does not save the deduction: Section 37(3) expressly leaves out clause (g). For brands buying from small manufacturers, packaging suppliers and job workers, overdue year-end payables can be added back to taxable profit. The rule continues Section 43B(h) of the 1961 Act.

Who it affects

  • Brands buying from manufacturers, job workers and packaging suppliers registered as micro or small enterprises
  • Any business with overdue supplier payables at year-end

Before and after

  • Where the rule sits

    Before
    Section 43B(h), Income-tax Act 1961 (from AY 2024-25)
    After
    Section 37(2)(g), Income-tax Act 2025 (from Tax Year 2026-27)

  • Paying after year-end but before the return due date

    Before
    Did not save the deduction for 43B(h) sums
    After
    Still does not: Section 37(3) excludes clause (g)

What to do

  1. Ask suppliers for their Udyam registration and record whether each one is micro, small or medium.
  2. Record the payment terms agreed in writing with each micro or small supplier.
  3. Before year-end, list payables to micro and small suppliers that are past the MSMED Act time limit.

Provisions referred to: Section 37(2)(g) Income-tax Act, 2025; Section 37(3) Income-tax Act, 2025; Section 43B(h) Income-tax Act, 1961; Section 15 MSMED Act, 2006

Related tools and services

Official text

As issued by Parliament of India (text as published by CBDT). Where the text starts with “Extract”, only the parts that concern ecommerce sellers are reproduced; the official PDF (opens in a new tab) is the authoritative version.

Type a word, number or section to highlight it below.

Extract: Section 37 of the Income-tax Act, 2025, clauses relevant to this update, as published on incometaxindia.gov.in. Omitted passages are marked […]. Income-tax Act, 2025 Section 37. Certain deductions allowed on actual payment basis only. 37. (1) The sums payable, as specified in sub-section (2), which are otherwise allowable as a deduction under this Act, shall be allowed as a deduction while computing the income chargeable under section 26 only in the tax year in which such sums are actually paid irrespective of— […] (2) […] (g) amount payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006). (3) In case the amounts specified in sub-section (2), except the sum referred to in clause (g) thereof, are paid after the end of the tax year in which the liability was incurred, but on or before the due date of filing of return of income under section 263(1) for such tax year, the deduction towards such sum shall be allowed in such tax year.

Questions sellers ask

What is the MSME 45-day rule in income tax?

Under Section 37(2)(g) of the Income-tax Act 2025 (Section 43B(h) of the 1961 Act), an amount payable to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act is allowed as a deduction only in the year it is actually paid.

What is the time limit under section 15 of the MSMED Act?

Payment must be made on or before the date agreed in writing, which cannot exceed 45 days from acceptance of the goods or services. Where there is no agreement, the limit is 15 days.

Does paying before filing the return save the deduction?

No. Section 37(3) allows the deduction for most actual-payment items paid before the return due date, but it expressly excludes the sum in clause (g).

Does the rule apply to medium enterprises?

No. The clause refers to a micro or small enterprise only.

Want help working out what this means for your business?

We handle GST and TDS compliance, returns and notice replies for D2C and marketplace sellers, and can walk you through how a change applies to your books.

Contact usWhatsApp us

General information only, not professional advice. The summary is ecomca’s reading of the document; the official PDF is the authoritative version, and later amendments may change it. Check the official source before you act.