MSMED Act 2006 · Section 15, 16 & 43B(h)
The MSME 45-day payment rule
Pay a registered micro or small supplier late and three things happen at once: compound interest starts running by statute, that interest is not deductible, and the purchase itself stops being deductible until the year you actually pay. Here is the rule in full, with the dates computed for you.
Last reviewed 10 November 2026 · General information on Indian law, not legal or tax advice.
The rule, in short
A buyer must pay a registered micro or small enterprise within 45 days of accepting the goods or services where a payment date is agreed in writing, and within 15 days where it is not. Past that, compound interest at three times the RBI bank rate accrues automatically under Section 16, and the expense is disallowed for income tax under Section 43B(h) until it is actually paid.
15 days
Where the buyer and supplier have not agreed a payment date in writing, payment is due on the appointed day — the day immediately following 15 days from acceptance or deemed acceptance.
Section 2(b) + Section 15, MSMED Act 2006
45 days
Where a date is agreed in writing, that date governs — but the agreed period can never exceed 45 days from acceptance or deemed acceptance. A clause saying 60 or 90 days is void to the extent it exceeds 45.
Proviso to Section 15, MSMED Act 2006
Work out the number
What a late payment actually costs
Enter the invoice, whether a written agreement exists, and how long the payment is overdue. The interest is compounded monthly at three times the RBI bank rate, as Section 16 requires.
Statutory interest rate is strictly 3x RBI Bank Rate = 20.25% p.a.
Auto-stamp Udyam certificate & trigger legal dunning sequence.
Where the rule comes from
Six provisions do the work
The payment deadline
Fixes the obligation: pay by the agreed date, and in no case later than 45 days from the day of acceptance or deemed acceptance. With no written agreement the limit is 15 days.
Compound interest, automatically
A buyer who pays late is liable to compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, running from the appointed day. It applies by force of statute — no agreement, demand or notice is required to trigger it.
Recovery through the Facilitation Council
A supplier may refer a dispute to the Micro and Small Enterprise Facilitation Council, which attempts conciliation and then arbitration. References are filed online through the MSME Samadhaan portal.
Disclosure in the annual accounts
A buyer who owes MSE dues must disclose the unpaid principal, the interest due, the interest actually paid and the interest accrued and unpaid in its annual financial statements.
The interest is not deductible
Interest paid or payable under Section 16 is expressly disallowed as a business expense for income tax. Paying late costs the interest and the deduction on that interest.
The income tax consequence
Inserted by the Finance Act 2023 and effective from AY 2024-25. A sum payable to a micro or small enterprise beyond the Section 15 limit is deductible only in the year it is actually paid. Unusually, the proviso allowing payment before the ITR due date does NOT apply to clause (h).
Worked example
One invoice, start to finish
| Supply accepted | 02 September 2026 | Goods delivered 02 Sep, no written objection raised |
| Written agreement? | Yes — 45 days | A payment date is recorded in the purchase order |
| Statutory limit expires | 17 October 2026 | 45 days from the date of acceptance |
| Appointed day | 18 October 2026 | Interest begins to run from this day |
| Invoice value | ₹2,50,000 | Principal outstanding |
| Actual payment | 17 December 2026 | 60 days past the appointed day |
| Rate applied | 20.25% p.a. | Three times the 6.75% RBI bank rate, monthly rests |
| Interest payable | ₹8,508 | Section 16, accrues without demand |
| Deduction for FY 2026-27 | Deferred | Section 43B(h) — allowed only in the year of payment |
| Deduction on the interest | Never | Section 23 disallows it outright |
The bank rate is the rate notified by the RBI, not the repo rate. Re-check it before relying on a figure — Section 16 follows whatever is notified at the time.
If you are the buyer
Six things to get right
- Capture the Udyam number and micro / small / medium classification in the vendor master at onboarding, not at payment time.
- Put a payment date in every purchase order and contract — without one the limit drops from 45 days to 15.
- Date the clock from acceptance, and record the acceptance date against the goods receipt.
- Raise any quality objection in writing within 15 days of delivery, or deemed acceptance takes effect.
- Flag micro and small invoices in the ageing report separately — they carry a tax consequence the others do not.
- Reconcile unpaid MSE dues before 31 March, and disclose them under Section 22 in the annual accounts.
If you are the supplier
How to get paid
- Keep the Udyam registration current and print the number on every invoice.
- Record the delivery and acceptance dates — the appointed day is computed from acceptance, not from your invoice.
- Raise a Section 16 interest claim with the principal; the entitlement is statutory and does not need a contract clause.
- If the buyer disputes, confirm whether they objected in writing within 15 days — if not, deemed acceptance applies.
- File with the MSEFC through MSME Samadhaan once the dues are clearly overdue; conciliation precedes arbitration.
Questions people actually search
MSME payment rules, answered
Is the MSME payment limit 45 days or 15 days?
Both, depending on the paperwork. 45 days is the maximum that can ever be agreed, and it applies only where the buyer and supplier have recorded a payment date in writing. With no written agreement the limit is 15 days from acceptance or deemed acceptance. A written term longer than 45 days is void to the extent of the excess, so the effective ceiling stays 45 days.
When does the 45-day clock actually start?
From the day of acceptance or deemed acceptance, not from the invoice date. Acceptance is the day the buyer accepts the goods or services. Deemed acceptance applies where the buyer raises no written objection within 15 days of delivery — in that case the clock starts from the delivery date. Raising a written objection resets the start to the day the objection is resolved.
Does the 45-day rule apply to medium enterprises?
No. Section 43B(h) of the Income Tax Act applies only to amounts payable to micro and small enterprises. Medium enterprises are outside it. The MSMED Act's own payment and interest provisions in Sections 15 and 16 are likewise framed around micro and small suppliers.
Does it apply to purchases from traders?
Generally no. Traders were allowed to register on Udyam from July 2021, but that registration is for priority sector lending benefits only. The prevailing professional position is that Section 43B(h) does not apply to amounts payable to a trading enterprise. Confirm the supplier's Udyam classification before relying on this.
What interest applies if payment is late?
Compound interest with monthly rests at three times the bank rate notified by the RBI, running from the appointed day until actual payment. At a 6.75% bank rate that is 20.25% per annum, compounded monthly. It accrues automatically under Section 16 and does not need to be demanded or agreed.
Can I pay before filing the income tax return and still claim the deduction?
No, and this is the trap. For most clauses of Section 43B, paying before the Section 139(1) due date preserves the deduction. The proviso does not extend to clause (h). If a micro or small supplier is paid after the 15 or 45 day limit and after 31 March, the deduction moves to the year of actual payment.
Is the supplier required to be registered on Udyam?
Yes for these consequences to attach. The supplier must hold a valid Udyam registration and be classified as micro or small on the date of supply. Collect the Udyam number at onboarding and store it against the vendor master — a certificate obtained after the supply does not retrospectively create the obligation.
How does a supplier recover unpaid dues?
File a reference with the Micro and Small Enterprise Facilitation Council of the state where the supplier is located, through the MSME Samadhaan portal. The Council conciliates first and then arbitrates. A buyer challenging an award must deposit 75% of the amount before the appeal is entertained.
Go deeper
Related tools and reading
Section 43B(h) calculator
Disallowance and due dates for a single vendor invoice.
OpenLate payment interest calculator
Section 16 compound interest, monthly rests.
OpenGlossary: MSME 45-day rule
The short definition and the statutory references.
OpenCollections & recovery
Dunning ladders and MSME recovery, automated.
OpenStop tracking the 45-day clock in a spreadsheet.
Dyopact flags every micro and small invoice against its appointed day, computes the Section 16 interest as it accrues, and triggers the dunning sequence before the deduction is lost.