I buy from small suppliers — is there a tax reason to pay them on time?

There is a direct link between paying your small suppliers on time and your own tax position. Where you buy goods or services from a supplier registered as a micro or small enterprise, the MSME law expects payment within a set time — 15 days where there is no written agreement, or the agreed period, which cannot exceed 45 days, where there is one. Pay within that time and your deduction for the purchase is allowed in the normal way.

Miss it and the deduction doesn't vanish — it moves. Under section 37(2)(g) of the Income-tax Act, 2025 (formerly section 43B(h) of the 1961 Act), a sum owed to a micro or small enterprise beyond that time is allowed only in the tax year in which you actually pay it. In practice, an amount still unpaid at the end of the tax year is disallowed for that year and allowed in the year of payment. Unlike some other expenses, paying it after the year-end but before you file your return does not bring the deduction back into the earlier year — so the year-end is when a review is most useful.

The compliant path and the considerate path are the same: keep your micro and small suppliers' dues current and you protect the timing of your deduction and avoid the separate interest the MSME law charges on delayed payments — interest that is itself not deductible for tax. The point to get right is which suppliers actually count: it depends on their registration and classification. Medium enterprises are outside the rule, and so, broadly, are traders registered only for priority-sector lending. We can help you identify your MSME suppliers and track payment timelines through the year.