Sections 23 and 24 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 23 says the interest a buyer pays or owes under the MSMED Act does not reduce the buyer's taxable income under the Income-tax Act, 1961. Section 24 then says that sections 15 to 23 have effect "notwithstanding anything inconsistent therewith contained in any other law for the time being in force". One is a tax rule; the other decides which law wins when there is a conflict.
Section 23: "notwithstanding anything contained in the Income-tax Act, 1961", the amount of interest payable or paid by any buyer under or in accordance with the Act shall not be allowed as deduction for computing income under that Act. Section 24: sections 15 to 23 have effect notwithstanding anything inconsistent in any other law for the time being in force.
Section 23: no income-tax deduction for the interest
The text: "Notwithstanding anything contained in the Income-tax Act, 1961, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction."
| Element | Text |
|---|---|
| Overriding words | "Notwithstanding anything contained in the Income-tax Act, 1961" |
| What is covered | "the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act" |
| Effect | "shall not ... be allowed as deduction" |
| Purpose | "computation of income under the Income-tax Act, 1961" |
Observe four things.
"Payable or paid". The disallowance applies whether the buyer has paid the interest or only owes it. It is not a matter of timing.
Only the interest. The section speaks of interest, not of the principal price. The cost of goods and services is not touched by section 23.
Only interest under this Act. Interest under a contract, or under another statute, does not fall within the words "under or in accordance with the provisions of this Act". Where a buyer pays interest that is at a rate agreed by contract and which does not arise under section 16, the section's words do not apply to that amount; the classification of a particular payment needs to be checked on the facts.
The 1961 Act is quoted as written. The section names the Income-tax Act, 1961. The Act is not amended in this respect by the Jan Vishwas Acts. How the Income-tax Act, 2025 deals with the disallowance for years where it applies is a matter for that statute; see our income-tax guides, for example MSME and small business income tax under ITA 2025.
The link with section 22
Section 22(v) asks audited buyers to show the further interest remaining due and payable in succeeding years, "for the purpose of disallowance as a deductible expenditure under section 23". So section 22 builds the record that supports the section 23 disallowance. See our post on section 22 disclosures.
A separate income-tax rule: section 43B(h)
The 45 day payment rule also has an income-tax side under section 43B(h) of the Income-tax Act, 1961, which concerns when amounts owed to micro and small enterprises become deductible. That is a different provision from section 23 and it concerns the principal price, not the interest. Do not merge the two. For the tax detail, see Section 43B(h): MSME payment within 45 days and our other income-tax guides.
If you are a buyer working out how your accounts and tax computation should treat MSME dues and interest, our MSME form filing service covers the compliance filings that sit alongside.
Section 24: the overriding effect
Section 24 reads: "The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
- Range: sections 15 to 23, which is the whole of Chapter V except section 24 itself.
- Trigger: only where there is something "inconsistent therewith" in another law. Where laws do not conflict, the clause has nothing to do.
- Scope of "any other law": the clause speaks of any other law for the time being in force, so it is not confined to a named Act.
The clause sits alongside the non-obstante words found inside individual provisions: section 16 ("notwithstanding anything contained in any agreement ... or in any law"), section 18(1) and 18(4) ("notwithstanding anything contained in any other law"). Section 24 is the general rule; those words are specific ones inside particular sections.
Section 24 covers sections 15 to 23 only. Sections 25 onward are outside its range.
What sections 23 and 24 do not say
- They do not say how the disallowed interest is reported in the tax return.
- They do not say anything about the supplier's tax treatment of interest received. The Act speaks only of the buyer's deduction.
- They do not say which law prevails where the conflict is with a later law; section 24 speaks of "any other law for the time being in force" without distinction.
- Section 24 does not list laws. Whether a particular law is "inconsistent" is a question for a court.
Practical examples
Example 1: interest on a delayed invoice. A buyer owes Rs 50,000 as interest under section 16 on a delayed bill. The interest is "payable", so whether the buyer pays or merely owes it, it is not an allowable deduction in computing income under the Income-tax Act, 1961.
Example 2: a contract clause. A buyer's contract says any delay carries interest at a stated rate, agreed by the parties. Whether the amount is interest "under or in accordance with" the MSMED Act depends on how it arises. Seek advice on how to characterise it.
Example 3: a conflicting law. Another law provides that a certain class of buyer cannot be made to pay interest. If that law is inconsistent with section 16, section 24 gives sections 15 to 23 effect over it.
Common mistakes
- Treating the interest as an ordinary business expense.
- Forgetting that the disallowance applies when the interest is payable, not only when paid.
- Mixing section 23 with section 43B(h).
- Assuming section 24 applies to sections 25 onward.
Need help with MSME dues, interest and filings?
Buyers need their MSME payables, interest and disclosures to line up across the accounts, the tax computation and the filings. Our MSME form filing team can help you review how these are reported.
Key takeaways
- Interest payable or paid by a buyer under the MSMED Act is not allowed as a deduction under the Income-tax Act, 1961 (s.23).
- The disallowance covers the interest only and applies whether paid or payable.
- Section 22(v) disclosures support the disallowance.
- Sections 15 to 23 override inconsistent laws (s.24).
- Section 43B(h) is a separate rule; see our income-tax guides.
Read next
- Section 16 of the MSMED Act, 2006: Compound interest on delayed payment
- Sections 25 and 26 of the MSMED Act, 2006: Closure scheme and officers
- MSMED Disclosures Under Section 22: Five Items and the Appointed Day
- MSME 45-Day Payment Rule: Buyer Compliance and Tax Implications
Disclaimer: Based on the Micro, Small and Medium Enterprises Development Act, 2006 (official text, not amended by the Jan Vishwas Acts of 2023 or 2026) and the Udyam notifications S.O. 2119(E) of 26 June 2020 and S.O. 1364(E) of 21 March 2025, read with later developments noted in the article, as on 30 September 2026. Notifications, rules and the Udyam portal change; verify the current position before acting.