Tag MSME Suppliers in Tally Once and the 43B(h) Note Is Easy

The MSME note is hard at year-end because nobody wrote down, during the year, which suppliers are micro or small and what payment terms were agreed with them. The law has not changed much since section 43B(h) came in. What helps is doing the work at the start: collect the Udyam details once, tag each supplier in Tally, keep bill-by-bill details with the right credit days, and look at an overdue list every month. Then the face split, the MSMED Act note, MSME Form I and the section 43B(h) figure all come from one register. This article covers that set-up. For the law itself (sections 15, 16, 22 and 23, the Schedule III items and Form 3CD), see MSME dues, section 43B(h) and the Schedule III disclosure. Law as at 1 November 2026. The figures are illustrative.

Step 1: collect Udyam details from every supplier

Ask every supplier when you onboard them, not only the ones the purchase team thinks are small, and ask again at each year-end. A one-page supplier declaration is enough. It should ask for:

• Legal name, PAN and GSTIN of the supplier.
• Whether it holds a Udyam registration: Yes (attach the Udyam certificate) or No (a signed statement that it is not registered).
• The Udyam Registration Number, and the classification (micro, small or medium) and major activity (manufacturing, services or trading) shown on the certificate.
• A promise to tell the buyer, in writing, about any change in its registration or classification.
• The date, a signature and the name of the person signing.

When the declaration comes in, check the number on the Udyam Registration portal (Print/Verify → Verify Udyam Registration) and keep a screenshot or printout with the declaration. Record the outcome in one of four groups:

Keep the declarations in one folder for each financial year. The accounts say the disclosure is "based on information available with the Company". This folder is that information, and it is the first thing the auditor will ask for.

Step 2: tag the supplier in the TallyPrime ledger

From TallyPrime Release 4.1 (March 2024), the party ledger can hold the supplier's MSME details. In the ledger, press F12 (Configure) and turn on Provide MSME Registration Details. Then set Set/Alter MSME Registration Details to Yes and fill in:

• Type of Enterprise: micro, small or medium.
• UDYAM Registration Number. Tally checks the format of the number but not whether it is genuine, so the portal check in Step 1 still matters.
• Type of Activity. This is what keeps traders out of Tally's MSME Form I report. Fill it in: a party left at Unknown is included.
• Effective Date for MSME Registration Details.

The effective date matters because a supplier's classification can change from year to year. When a small supplier becomes medium, enter the new type from its effective date. Bills before that date keep the old type, and Ctrl+I → MSME Registration Details (History) shows every change. To do many suppliers at once, use Alt+G (Go To) → Update Party MSME Details. You can update one party with Alt+H, or enter details in columns for many parties with Alt+R (Multi Alter).

It also helps to create two sub-groups under Sundry Creditors, "Creditors — Micro & Small" and "Creditors — Others", and move each ledger into the right one. The trial balance then shows the face split on its own. Map both sub-groups to trade payables (see mapping Tally groups to Schedule III). If a supplier's status changes, move the ledger to the other sub-group.

Step 3: bill-by-bill, with the credit days that are really agreed

Section 15 of the MSMED Act sets the payment deadline. The buyer must pay by the date agreed in writing, and the agreed period can be no more than 45 days from acceptance. If nothing is agreed in writing, the buyer has 15 days. Tally can only track this if every MSME creditor has Maintain balances bill-by-bill set to Yes, with a Default credit period.

Know how Tally fills a blank. Under F11 there is a company feature called Credit Days allowed for Micro and Small parties, and it is set to 45 days by default. Tally treats a credit period entered in the ledger or on a bill as an agreed period. Where no period is entered, Tally applies the F11 figure. In the MSME reports, check the due-date basis under Ctrl+B (Basis of Values): Bill-wise or MSME Credit Period (whichever is earlier) uses the days you enter, while MSME Credit Period uses the F11 figure for every bill. So a supplier with no written terms is tracked at 45 days in Tally, but the law gives you 15. In practice:

• Written terms of 45 days or less (a purchase order, contract or accepted invoice terms): enter those days in the ledger, and keep the document.
• Written terms over 45 days: enter 45. The longer term has no effect for section 15.
• No written terms: enter 15 days in the ledger yourself. Don't leave it blank.

Two habits keep the bill-wise data reliable. First, settle every payment against the bill (Agst Ref) and not "On Account", or the bill will look unpaid. Second, enter purchases as soon as goods or services are received. Section 15 counts from acceptance, which is the day of delivery or of the service, unless the buyer objects in writing within 15 days. Tally works out the due date from the bill as entered. A bill entered weeks after delivery gets a due date that is too late.

Step 4: a monthly overdue review, and Form I twice a year

Once the tags and credit days are in, open Outstanding MSME Bills (through Go To) at every month-end. Pay or question anything that is due before the next payment run. Add it to the client's month-end close. It takes a few minutes, and it is cheaper than interest at three times the bank rate, which is never deductible (s.23).

MSME Form I. Under the MCA's 2019 Specified Companies order, as amended on 15 July 2024 (S.O. 2751(E)), a company files a half-yearly return only if it has payments to micro or small enterprises pending for more than 45 days from acceptance. The return is due by 31 October for April–September and by 30 April for October–March. The 2024 form asks for each supplier's name and PAN, and splits the half-year's amounts into: paid within 45 days (through TReDS or another mode), paid after 45 days, outstanding for 45 days or less, outstanding for more than 45 days, and the reason for the delay. The form uses 45 days as its test, whatever was agreed. So a bill can be late under section 15 (paid on day 26 with no written terms) and still not count as "after 45 days" in Form I.

TallyPrime has an MSME Form 1 Annexure report under Display More Reports → Statutory Reports → MSME Reports. Release 6.1 (June 2025) changed it to the revised format, with a supplier-wise summary and an Excel export for the MCA template. Releases 6.0 and earlier do not have the revised annexure. The report covers only parties kept bill-by-bill and leaves out medium enterprises and trading activity. So any gaps from Steps 2 and 3 show up as a Form I that is short. One setting to watch: the annexure splits bills into within and after the credit period using the due-date basis chosen under Ctrl+B (Basis of Values). With Bill-wise or MSME Credit Period (whichever is earlier), a 15-day bill paid on day 26 falls in the "after" columns, which export as "paid after 45 days". For the Form I export, switch the basis to MSME Credit Period (45 days in F11), because the form tests 45 days.

A worked supplier register

A small manufacturing company has six regular suppliers. At 31 March 2026 its MSME register reads:

The bill-wise detail for the in-scope suppliers, with the payments made after the year end:

What the register gives you:

• Face split: micro and small ₹10,70,000 (Shree B and C, Kiran, Apex) and others ₹11,80,000. The MSME rows of the ageing schedule must also total ₹10,70,000.
• Section 22 / Schedule III note: principal unpaid at the year end, ₹10,70,000. The interest items come from section 16 interest, at three times the RBI bank rate, compounded monthly: at 31 March 2026 that is interest on Shree A (paid late) and on Shree B and Kiran (overdue at the year end). Apex was not yet due at 31 March, so its interest arises only in 2026-27.
• Section 43B(h), FY 2025-26 (Income-tax Act, 1961): ₹4,00,000 + ₹1,20,000 + ₹3,00,000 = ₹8,20,000 disallowed. Paying them before the return due date does not help, because the proviso to section 43B does not apply to clause (h). Separately, ₹1,80,000 disallowed for FY 2024-25 and paid in May 2025 is allowed in FY 2025-26.
• Tax year 2026-27: the ₹8,20,000 was paid in April–June 2026, so carry it forward and claim it in the year of payment. Under the Income-tax Act, 2025, the same rule is section 37(2)(g), and section 37(3) again leaves clause (g) out of the relief for payment by the return due date.
• Form I: the October 2025–March 2026 return (due 30 April 2026) was needed because of Shree A. The April–September 2026 return, due 31 October 2026, was needed because of Shree B (day 57) and Apex (day 87).

Look at Kiran Packaging. If its ledger had been left at Tally's 45-day default, the bill would have shown a due date of 24 April, nothing would have looked overdue at 31 March, and a ₹1,20,000 disallowance would have been missed. Entering 15 days in the ledger is what catches it.

Year-end: what the auditor ties

If the client has none of this, start by asking for the declarations and the payment terms of the larger creditors, on the year-end query list. Then set up Steps 1–4 for next year. Once the suppliers are tagged, every later year mostly carries forward.

Frequently asked questions

Sources

• Micro, Small and Medium Enterprises Development Act, 2006 — sections 2, 15, 16, 22 and 23 (Ministry of MSME)
• MCA — Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Amendment Order, 2024, S.O. 2751(E), 15 July 2024, with the substituted MSME Form I
• MCA — Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019, S.O. 368(E), 22 January 2019
• Office of the DC (MSME) — OM of 1 September 2021: delayed payment provisions not available to retail and wholesale traders
• Memorandum explaining the provisions in the Finance Bill, 2023 — section 43B(h)
• Income-tax Act, 2025 — section 37(2)(g) and 37(3)
• Companies Act, 2013 — Schedule III, Division I, as amended (India Code)
• Tally Solutions — TallyPrime Help: Set up UDYAM details for MSME suppliers
• Tally Solutions — TallyPrime Help: MSME FAQs (credit days, Form 1 Annexure, Outstanding MSME Bills)
• Tally Solutions — Release Notes for TallyPrime Release 4.1
• Tally Solutions — Release Notes for TallyPrime Release 6.1

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