Guides · MSME
What happens when an MSME bill crosses 45 days
The moment a micro or small supplier's bill crosses the Section 15 deadline, three things follow at once — statutory interest, an income-tax cost for the buyer, and, for companies, a disclosure duty. Here is what changes on the appointed day.
What is the appointed day?
The appointed day is the day immediately after the payment fell due under Section 15 — the moment a micro or small supplier's bill becomes overdue and interest begins to build.
With a written agreement the due date is the agreed date, capped at 45 days from acceptance; without one it is 15 days from acceptance. The count of days overdue runs from the appointed day.
What interest starts to run after the deadline?
From the appointed day the buyer owes compound interest under Section 16 at three times the bank rate notified by the RBI, with monthly rests.
Because the rate tracks the RBI Bank Rate, a long delay can span more than one notified rate. The MSME delayed-payment interest calculator turns a due date and an overdue count into a rupee figure.
What is the income-tax consequence for the buyer?
The buyer cannot deduct the purchase from taxable profit until the amount is actually paid, under Section 43B(h) of the Income-Tax Act — so a bill left unpaid past 45 days raises the buyer's tax for that year.
Unlike the rest of Section 43B, paying before the income-tax return due date does not restore the deduction for clause (h); only actual payment does.
What must a company disclose once a bill crosses 45 days?
A company must report the outstanding amount and the reason for the delay to the Ministry of Corporate Affairs through MSME Form 1, filed for each half year.
The returns fall due by 31 October for April to September and by 30 April for October to March.
Can the parties waive the consequences?
No. Section 16 applies notwithstanding any agreement, so the interest and the appointed day cannot be waived or reduced by a clause in the contract.
The supplier can still choose whether to pursue the interest, but the liability itself arises by law from the appointed day.
Questions
- When exactly does the overdue clock start?
- On the appointed day — the day immediately after the Section 15 due date, which is the agreed period capped at 45 days, or 15 days with no written agreement.
- Does the interest stop if the buyer pays the principal?
- No. Interest accrued for the period of delay under Section 16 is a separate due and remains payable even after the principal is cleared.
- Is the Section 43B(h) disallowance permanent?
- It is a timing cost. The deduction is allowed in the year the payment is actually made, but the delay pushes taxable profit up in the year of the delay.
This guide is general information, not legal or tax advice. Confirm the current rules and your own circumstances for any specific case.