The MSME 45-Day Payment Rule, Explained

Section 15: the payment deadline

Section 15 fixes when a buyer has to pay a micro or small supplier. Where the two sides have agreed a credit period in writing, payment is due on the agreed date — but that date can never be more than 45 days after the day the buyer accepts the goods or services. Where there is no written agreement, payment is due within 15 days of acceptance.

The clock runs from the day of acceptance or deemed acceptance. If the buyer does not object in writing within 15 days of delivery, the goods are treated as accepted, and the count begins. The day after the due date is the appointed day — the moment the payment becomes overdue and interest starts to build.

Section 16: interest on delayed payment

When a buyer misses the Section 15 deadline, Section 16 makes them liable for compound interest with monthly rests, at three times the bank rate notified by the Reserve Bank of India, from the appointed day. This liability applies notwithstanding anything in the contract — a clause promising a lower rate, or no interest at all, cannot override it.

With the RBI Bank Rate at 5.50% (effective 5 December 2025), the statutory rate works out to 16.5% a year, or about 1.375% a month, compounded monthly. Because the rate tracks the RBI Bank Rate, a long delay can span more than one notified rate. A supplier who cannot recover the amount and interest can refer the dispute to the Micro and Small Enterprise Facilitation Council, whose award carries the same interest. You can estimate the figure for one bill with the MSME delayed-payment interest calculator.

Section 43B(h): the income-tax teeth

The MSMED interest provisions have existed since 2006, but for years they were weakly enforced. Section 43B(h) of the Income-Tax Act, effective from the financial year 2023-24 (assessment year 2024-25), changed the incentive. It says a buyer cannot claim a deduction for a purchase from a micro or small enterprise until the amount is actually paid — unless it is paid within the Section 15 time limit.

In practice: pay a micro or small supplier within 15 or 45 days and the expense is deductible in the same year it is booked. Pay late and the deduction moves to the year the money actually changes hands, pushing up the buyer's taxable profit in the year of the delay. Unlike the rest of Section 43B, the usual relief — that an amount is deductible if paid before the income-tax return due date — does not apply to clause (h). This is what gives the 45-day rule real weight: a late-paying buyer pays more tax now, not just interest later.

Two limits matter. Section 43B(h) applies only to micro and small enterprises, not medium ones. And it applies only to manufacturers and service providers registered under the MSMED Act — wholesale and retail traders are outside it, because their Udyam registration is recognised only for priority-sector lending.

Who is protected, and who owes

The protection belongs to the supplier, and it depends on the supplier being a micro or small enterprise registered on the Udyam portal at the time of supply. The buyer's own size does not matter — a large buyer owes a small registered supplier the same duty as anyone else. Enterprises are classified on investment in plant and machinery and annual turnover: micro up to ₹1 crore and ₹5 crore, small up to ₹10 crore and ₹50 crore.

The buyer carries the obligations: pay on time, and pay the statutory interest if late. Companies also carry a disclosure duty. Through MSME Form 1, a company with any amount owed to a micro or small supplier for more than 45 days must report the outstanding sum and the reason for delay to the Ministry of Corporate Affairs every half year — by 31 October for April to September, and by 30 April for October to March.

How a ledger keeps the clock

The rule only helps if you know, at a glance, which bills have crossed the line. That is a records problem: every receivable needs a date of acceptance, a due date, and a running age. Lekha ages each bill against the MSME 45-day clock — days since acknowledgement, with the overdue ones flagged — so an owner can see which buyers to chase before a small delay becomes a large one. Lekha records and tracks; it does not execute payments or compute your statutory interest for you, which is why the interest estimate lives in a separate tool.

Read the counterpart to this guide — the MSME delayed-payment interest calculator — to turn a due date and an overdue count into a rupee figure, or see how the clock sits inside the wider ledger on the features page.

Questions

What is the MSME 45-day payment rule?

Under Section 15 of the MSMED Act 2006, a buyer must pay a registered micro or small supplier within the period agreed in writing — which can never exceed 45 days from acceptance of the goods or services — or within 15 days where nothing is agreed in writing.

Does Section 43B(h) apply to traders?

No. Section 43B(h) covers dues to micro and small enterprises that manufacture goods or provide services. Wholesale and retail traders get Udyam registration only for priority-sector lending, so amounts owed to a trader are outside Section 43B(h).

How is MSME delayed-payment interest calculated?

Section 16 charges compound interest with monthly rests at three times the bank rate notified by the RBI, running from the appointed day (the day after the Section 15 due date). With the RBI Bank Rate at 5.50%, that is 16.5% a year, compounded monthly.

Does the 45-day rule apply to medium enterprises?

The Section 15 and 16 delayed-payment protections apply to micro and small suppliers. The Section 43B(h) income-tax disallowance also applies only to micro and small enterprises, not to medium ones — though companies separately report dues to medium enterprises through MSME Form 1.

This guide is general information, not legal or tax advice. Confirm the current RBI Bank Rate and your supplier's registration status for any specific case.