Revised MSME Thresholds for 2025: Investment and Turnover Limits Explained

From April 1, 2024, there’s a new twist in how businesses handle payments to micro and small enterprises (MSEs). Thanks to Section 43B(h) of the Income Tax Act, any payment to an MSE that’s delayed beyond 15 days—or 45 days if there’s a written agreement—won’t be allowed as a tax deduction.

This isn’t just a compliance update. It’s a real shift in how companies manage their cash flows. Businesses that once delayed payments as a norm now have to think twice. Paying MSEs on time is no longer just a good business practice—it’s become a tax necessity.

Revised MSME Thresholds and Coverage

The 2024 amendments to the definitions of Micro, Small, and Medium Enterprises (MSMEs) have updated the investment and turnover limits, as outlined below:

Enterprise Type	Investment Limit	Turnover Limit
Micro	≤ ₹2.5 Crore	≤ ₹10 Crore
Small	≤ ₹25 Crore	≤ ₹100 Crore

Medium enterprises remain excluded, a nuance often overlooked in compliance planning.

Operational Hurdles and Working Capital Strains

In my experience, clients initially underestimated the administrative burden of verifying Udyam registration status across vendors. A recent survey by the CA Institute found that 68% of mid-sized firms lacked systems to track MSE payment deadlines, risking disallowances. That said, proactive entities now embed Udyam checks into procurement workflows—a move that mitigates audit risks while strengthening supplier relationships.

Strategic Mitigation

Vendor Declarations: Collect annual certifications confirming MSE status and business nature (manufacturing/services vs. trading).
Dynamic Discounting: Early payment incentives, such as 1-2% discounts for settlements within 10 days, improve liquidity for both parties.
Documentation Protocols: Maintain granular records of delivery dates, acceptance memos, and payment receipts (reflecting recent CBDT clarifications).

The Hidden Liability: Interest and Reputational Costs

Beyond tax disallowances, delayed payments attract compound interest at 3x the RBI repo rate under Section 16 of the MSMED Act. Worse, MSEs increasingly leverage the Facilitation Council mechanism—a trend I’ve observed doubling in client disputes since 2023.

Conclusion

Section 43B(h) is less a compliance checkbox than a strategic pivot. Firms that integrate Udyam verification, renegotiate payment terms, and adopt supply-chain financing tools will navigate this shift seamlessly. Those that don’t risk eroding margins and supplier trust in an economy where MSEs contribute 30% of GDP.