I thought this looked a good candidate for CROSS APPLY:

insert into dbo.def 
(
    SeqNo,
    Date_Field,
    Payment
)
SELECT A.Seqno,
       X.Date_Field,
       A.Payment
  FROM dbo.abc A
 CROSS APPLY (SELECT DATEADD(mm, T.N, A.Date_field) Date_Field
                FROM dbo.Tally T
               WHERE T.N BETWEEN 0
                 AND A.Month_Count - 1) AS X

I have found that the performance of recursive CTEs degrades a lot as the number of rows increase.

You will need to create Jeff Moden's tally table to use it