The 45-day rule for MSME payments
Under Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006, a buyer who purchases goods or services from a micro or small enterprise must pay on or before the date agreed in writing, which cannot exceed 45 days from the day of acceptance (or deemed acceptance). If there is no written agreement, payment is due within 15 days. This applies to suppliers registered on the Udyam portal as Micro or Small — not Medium enterprises, and not traders for the purpose of Section 43B(h).
Interest on delay — Section 16
If the buyer fails to pay by the appointed day, interest is payable at three times the bank rate notified by RBI, compounded with monthly rests, from the appointed day until actual payment. With the bank rate at 6.5%, the penal rate is 19.5% per annum compounded monthly — roughly 21.3% effective. This interest is payable whether or not the supplier demands it, and under Section 23 of the MSMED Act it is not deductible as a business expense for the buyer.
Worked example
Invoice of ₹2,50,000 accepted on 10 January 2026 with an agreed 45-day credit period: appointed day 24 February 2026. If paid on 30 June 2026 the delay is 126 days (4 months 6 days). Interest at 19.5% compounded monthly: ₹2,50,000 grows to about ₹2,67,400 → interest payable ≈ ₹17,400. The simple-interest equivalent would be ₹16,800.
Section 43B(h) of the Income-tax Act
- Effective from FY 2023-24 (AY 2024-25), any sum payable to a micro or small enterprise is allowed as a deduction only in the year it is actually paid, if paid beyond the MSMED time limit.
- Payments made within 15/45 days are deductible on accrual basis even if paid after 31 March.
- Amounts outstanding at year-end beyond the limit are disallowed in that year and allowed in the year of payment.
- Tax audit report Form 3CD clause 22 requires disclosure of interest inadmissible under the MSMED Act, and companies must file MSME Form 1 half-yearly for dues over 45 days.
How to use
Enter the invoice amount, acceptance date, whether a written credit period exists, the payment date (leave as today for unpaid bills) and any part payments. The calculator shows the appointed day, delay, applicable rate, compound interest and whether the expense is at risk of disallowance under Section 43B(h) based on the buyer's FY-end.
Frequently Asked Questions
What is the maximum credit period allowed to an MSME supplier?
45 days from acceptance of goods or services, even if the contract says more. Without a written agreement, 15 days.
What is the current penal interest rate?
Three times the RBI bank rate, compounded monthly. With a 6.5% bank rate this is 19.5% per annum; update the rate if RBI changes it.
Does Section 43B(h) apply to purchases from traders?
No. CBDT has clarified that wholesale and retail traders registered under Udyam are not covered by 43B(h); it applies to manufacturing and service micro/small enterprises.
Can the buyer claim the delayed-payment interest as an expense?
No. Section 23 of the MSMED Act specifically disallows this interest as a deduction under the Income-tax Act.
Where can an MSME supplier recover delayed payment?
Through the MSME Samadhaan portal, which refers the dispute to the Micro and Small Enterprises Facilitation Council for conciliation and arbitration.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.