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Payments to micro and small suppliers are released near 31 March but some clear only in April.
Treat the bank debit date as the payment date; anything not debited by 31 March stays on the year-end add-back list unless the auditor agrees otherwise.
A payment run register with UTR or cheque number, bank debit date and supplier due date, reconciled to the bank statement.
A year-end MSME schedule showing which payables were paid in time on bank evidence.
For the MSME 45-day rule, the safe date to use is the day money actually leaves your bank account. That is the date a tax auditor can verify from the bank statement. A payment voucher posted in the books, or a cheque that is signed but not yet cleared, does not on its own prove that a micro or small supplier was paid in time.
This matters most near 31 March. Under Section 43B(h) of the Income-tax Act 1961, a late payable to a micro or small supplier is deductible only in the year it is actually paid.
Why might a payment not count?
| Situation | Evidence date | Trap near 31 March |
|---|---|---|
| Cheque issued but not cleared | Bank debit date, often 1 to 3 working days later | A 31 March cheque that clears on 2 April shows as an April payment |
| Voucher booked, no bank debit | None | The books say paid, the bank says not |
| NACH or auto-debit reversed | Reversal date cancels the debit | Payable is still open |
| Set-off against supplier’s dues | Confirmation letter, if any | Treatment depends on the auditor’s view |
| Post-dated cheque | Date it is presented and clears | Handing it over early does not make it a payment |
My 31 March payment run cleared on 1 April. Does it count?
Test it against the bank statement. Look at the value date of each debit, not the date the file was uploaded to net banking. RTGS and NEFT made on 31 March during bank hours usually show a 31 March debit. Items processed after the cut-off may show 1 April.
Whether a cheque handed over on 31 March can count as paid on that date is a legal question on which views differ. The cautious approach, and the one our reconciliation guides use, is to rely on the bank debit date. Keep the clearing proof, such as the UTR for electronic payments or the cheque clearing entry, so the auditor can see it.
Can I settle an MSME payable by adjusting a counter-balance?
Sometimes a supplier also owes you money, for example for returned goods. Netting the two by journal entry is common in practice, but it has no bank evidence. Treat it as a point to confirm with your tax auditor before year-end, and get a written confirmation of the set-off from the supplier, dated before 31 March.
Worked example: two payments on 31 March
Two small suppliers are due ₹12,00,000 and ₹3,00,000 on or before 31 March 2026.
- Supplier A: ₹12,00,000 sent by RTGS at 11:00 on 31 March. The bank statement shows a 31 March debit with a UTR. Paid in time, so nothing is added back.
- Supplier B: ₹3,00,000 by cheque dated 31 March, handed over that afternoon, cleared on 2 April. On the bank-debit test, it is paid in FY 2026-27.
On the conservative view, ₹3,00,000 stays on the year-end add-back list for FY 2025-26. At a 25.17% effective company rate, that moves ₹3,00,000 × 25.17% = ₹75,510 of tax into the year, with the deduction coming back in FY 2026-27.
If both had gone by RTGS before the cut-off, the add-back would be ₹0.
How do I avoid this at year-end?
- Release MSME payments due near year-end by RTGS or NEFT, a few working days before 31 March.
- Reconcile the payment run to the bank statement on 31 March itself, not in April.
- List any item without a 31 March debit and decide its treatment with the auditor.
- File the UTRs against each supplier’s invoice for the Form 3CD working.