MSME Udyam Registration and the 45-Day Payment Rule

Udyam registration gives micro, small and medium enterprises (MSMEs) an official identity, access to government schemes and, importantly, legal protection against delayed payments. Since 2024, buyers have a strong tax reason to pay MSME suppliers on time: under section 43B(h), a payment to a micro or small enterprise delayed beyond the legal limit is not deductible until it is actually paid.

MSME classification (revised from 1 April 2025)

An enterprise is classified on both investment in plant and machinery or equipment and annual turnover:

Category	Investment up to	Turnover up to
Micro	₹2.5 crore	₹10 crore
Small	₹25 crore	₹100 crore
Medium	₹125 crore	₹500 crore

These limits were raised by notification S.O. 1364(E) dated 21 March 2025 (earlier: ₹1 crore / ₹5 crore for micro, ₹10 crore / ₹50 crore for small, ₹50 crore / ₹250 crore for medium). Export turnover is excluded when calculating turnover for classification. Manufacturing and services follow the same limits.

How to register on Udyam

Go to udyamregistration.gov.in (registration is free).
Enter the Aadhaar of the proprietor, managing partner or authorised director, and verify with an OTP.
Enter the PAN. Investment and turnover details are auto-fetched from the ITR and GST data where available.
Add business details: name, address, bank account, NIC code (activity), employees and units.
Submit. A permanent Udyam Registration Number and an e-certificate are issued.

No documents need to be uploaded, because the system relies on PAN, Aadhaar and GST data. Classification is updated automatically each year from ITR and GST data.

Traders: retail and wholesale traders can register (since 2021) for priority sector lending, though some MSMED Act benefits are limited for them. The Udyam Assist Platform serves informal micro enterprises.

Benefits of Udyam registration

Delayed payment protection under the MSMED Act: buyers must pay within 15 days, or up to 45 days if agreed in writing. Late payments carry compound interest at three times the RBI bank rate, and you can file a case with the MSME Samadhaan / Facilitation Council.
Section 43B(h) tax pressure on buyers (below)
Priority sector lending, with collateral-free loans under the CGTMSE credit guarantee scheme
Government tenders: EMD exemption and procurement preference (25% public procurement target from MSEs)
Subsidies and schemes: patent and trademark fee concessions, ZED certification, technology upgrade schemes, and state incentives
Lower interest rates and concessions from many banks

Section 43B(h): the 45-day rule for buyers

What it says: any amount payable to a micro or small enterprise (not medium) registered under the MSMED Act is deductible only in the year it is actually paid, if it is paid after the time limit in section 15 of the MSMED Act:

15 days from acceptance or deemed acceptance of the goods or services, if there is no written agreement
the agreed period, but no more than 45 days, if there is a written agreement

Effective from: AY 2024-25 (FY 2023-24). Under the Income-tax Act, 2025 the rule continues in section 37 (deductions allowed only on actual payment).

Example: a trading company buys goods worth ₹10 lakh from a micro enterprise on 20 February 2026, with a 45-day written credit term, so payment is due by 6 April 2026. If paid on 10 May 2026 (after year-end and after 45 days), the ₹10 lakh is disallowed in FY 2025-26 and allowed in FY 2026-27, when paid.

Key points

It applies only to micro and small enterprises, not medium.
Many experts hold that it applies only to manufacturers and service providers registered under Udyam, not traders, because traders are outside the MSMED Act’s delayed-payment chapter.
It does not apply to buyers under the presumptive scheme (44AD/44ADA), as they don’t claim expenses separately.
Payment before the ITR due date does not save the deduction, unlike other 43B items. Only payment within 15 or 45 days does.
Tax auditors report these amounts in Form 3CD, and companies report MSME dues in MSME-1 (half-yearly) and in the financial statements.

What buyers should do

Collect Udyam certificates from all vendors and tag them in the vendor master (micro, small, medium; manufacturer, service provider or trader).
Put written agreements in place with credit periods of 45 days or less.
Track MSME payables ageing weekly.
Plan year-end payments: clear MSE dues by 31 March, or within 45 days, to keep the deduction in the current year.

Frequently asked questions

Is Udyam registration mandatory?
No, it is voluntary. But without it you can’t claim the MSMED Act protections or many MSME benefits, and buyers don’t need to apply 43B(h) to your bills.

My turnover grew past ₹10 crore. Do I lose micro status?
Your classification moves up to small based on the ITR and GST data. Under the composite test, an enterprise moves to a higher category if it crosses either limit.

Does 43B(h) apply to capital goods?
No. It applies to amounts claimed as expenses (purchases, services). Capital goods are covered through depreciation and are generally outside this provision.

Supplier or buyer, MSME rules affect your cash and your tax. Garvita Jain & Co. registers businesses on Udyam, sets up 43B(h) tracking in your books, files MSME-1, and helps suppliers recover delayed payments. Contact us here, or at contact@garvitajainandco.com or +91 98678 16597.

This article is general information based on the law as of November 2026 and is not professional advice.

Sources

Official

Professional / CA publications

MSME / Udyam Registration and the 45-Day Payment Rule