Section references: from tax year 2026-27, deductions allowed only on actual payment — including the 45-day rule for payments to micro and small suppliers — are in Section 37 of the Income Tax Act, 2025 (Section 43B, clause (h), of the 1961 Act).
Quick answer: Udyam registration is the free online registration that officially recognises your business as a micro, small or medium enterprise. Since 1 April 2025, the limits are higher: a micro enterprise can have investment up to ₹2.5 crore and turnover up to ₹10 crore. And there is a rule that every buyer of MSME goods and services should know. Under Section 43B(h), a business that pays a micro or small supplier late cannot claim that expense as a deduction until it actually pays.
A Vadodara manufacturer buys packaging from a small local unit. The bill is ₹8,00,000. The invoice sits in the accounts pile for three months, because the supplier “never chases”. At year end, the CA asks one question: was it paid within 45 days? It was not. That ₹8,00,000 cannot be claimed as a deduction this year. The tax bill goes up for no business reason.
This guide is for both sides. If you are a small business, it tells you why Udyam registration matters. If you buy from small businesses, it tells you why timing matters.
What Is Udyam Registration?
Udyam registration is the government’s online system to register micro, small and medium enterprises. You get an Udyam Registration Number and a certificate. The process is free on the official portal, and it is linked to your PAN and GST details.
Many online agents charge fees for it. You should not need to pay for the government registration itself.
MSME Limits From 1 April 2025
The classification was revised in 2025. An enterprise is classified using 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 |
If a business crosses either limit, it moves to the next higher category. Always check the current notification before you rely on the table, because limits can be revised again.
Why Udyam Registration Is Worth Doing
- Proof of MSME status for banks, buyers and tenders.
- Easier access to MSME schemes, such as priority sector lending and credit support, subject to each scheme’s own conditions.
- Protection on delayed payments. The MSME law gives registered suppliers a route to recover dues with interest when buyers pay late.
- A stronger position with large buyers, who increasingly ask for the certificate on their vendor forms.
The Section 43B(h) Rule in Plain Words
Section 43B(h) of the Income Tax Act applies to payments owed to micro and small enterprises. The rule works like this:
- If you buy goods or services from a micro or small enterprise, you must pay within the time allowed under the MSME law.
- That time is the period agreed in writing, up to a maximum of 45 days. If there is no written agreement, it is 15 days.
- If you pay within the time, you claim the expense in the normal year.
- If you pay late, you can claim the expense only in the year you actually pay.
So the rule does not create a penalty. It moves the deduction to a later year, which can raise your taxable profit and tax payable in the year of the purchase.
Who Is Covered, and Who Is Not
- Covered: suppliers who are micro or small enterprises with a valid Udyam registration.
- Not covered: medium enterprises, and suppliers who have no Udyam registration.
- Grey areas: some cases, such as traders and service providers, have drawn debate. Ask your CA how the rule applies to your suppliers.
This is why every buyer should ask small suppliers for their Udyam certificate and record the date of registration. It decides whether the rule applies to the payment.
A Simple Example
| Situation | Result |
|---|---|
| Supplier is a registered small enterprise. You pay in 30 days with a written 45-day agreement. | Deduction allowed in the year of purchase. |
| Same supplier. You pay in 90 days. | Deduction allowed only in the year of payment. |
| No written agreement. You pay in 25 days. | Beyond the 15-day limit, so the deduction waits for the year of payment. |
| Supplier is a medium enterprise. | The rule does not apply. |
What Buyers Should Do Before Year End
- List all suppliers and mark which ones are micro or small, using their Udyam certificates.
- Check the payment terms on each contract. Put payment terms in writing, and keep them to 45 days or less.
- Pay overdue MSME bills before 31 March so the deduction is available this year.
- Ask your accountant to flag MSME dues in the year-end checklist.
What Small Businesses Should Do
- Register on Udyam if you have not. Keep the certificate ready for buyers.
- Update your details if your investment or turnover changes.
- Put payment terms in writing on every order.
- Follow up politely on overdue invoices. Buyers now have a tax reason to pay on time.
Related Reading
- New business compliance checklist
- Presumptive taxation (44AD/44ADA)
- Tax audit due date and who needs one
- Business advisory services
Frequently Asked Questions
Is Udyam registration free?
Yes, on the official government portal. Be careful of agents who charge fees for the same registration.
What documents do I need?
Aadhaar of the owner or authorised person, your PAN, and your GST details where applicable. Business details such as activity, investment and turnover are also entered.
Does Section 43B(h) apply to medium enterprises?
No. It applies to payments to micro and small enterprises.
What is the payment limit under the MSME law?
The agreed period, up to 45 days. Without a written agreement, 15 days.
If I pay late, do I lose the deduction?
No. You get it, but in the year you actually pay.
How do I know if my supplier is micro or small?
Ask for their Udyam registration certificate, and check the category on it.
This article is general information, not professional advice. Limits, sections and conditions can change by notification or court ruling, so confirm current rules with your CA before acting.