The MSME 45-day payment rule and Section 43B(h), explained
If you sell to other businesses and you are a registered micro or small enterprise, the law sets a deadline for your customers to pay you. If you buy from one, the same rule decides when an unpaid bill stops being a tax deduction. Here is how it works, in plain English.
The rule in one paragraph
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 says a buyer must pay a micro or small supplier on the date they agreed in writing, and that date can be no more than 45 days after the buyer accepted the goods or services. If there is no written agreement, the buyer has 15 days. Pay late, and the buyer owes compound interest at three times the RBI Bank Rate.
Who is covered
- The supplier must be a micro or small enterprise with a Udyam registration. Medium enterprises are not covered by the delayed-payment rules.
- The buyer can be any business, whatever its size, including large companies.
- Traders registered on Udyam only for priority-sector lending are widely treated as outside this protection. Check with your CA before relying on it.
Counting the days
| Situation | Pay by |
|---|---|
| Written agreement of 45 days or less | The agreed date |
| Written agreement of more than 45 days | 45 days from acceptance (the excess does not count) |
| No written agreement | 15 days from acceptance |
Acceptance is the day the buyer accepts the goods or services. If the buyer does not object in writing within 15 days of delivery, the delivery day counts as the day of acceptance (deemed acceptance).
Interest on late payment
Section 16 sets the interest at three times the Bank Rate notified by the Reserve Bank of India, compounded with monthly rests, from the day after the payment was due until it is paid. The Bank Rate changes with RBI policy, so check the current figure on the RBI website before you work it out.
Estimate the interest
This calculator compounds monthly for whole months and adds simple interest for the remaining days. Courts and facilitation councils may compute it differently, and the Bank Rate may have changed during the period.
Section 43B(h): why buyers now care
Since the financial year 2023-24, section 43B(h) of the Income-tax Act, 1961 says a buyer can claim a purchase from a micro or small enterprise as an expense only in the year it is actually paid, unless it is paid within the MSMED time limit above. So an invoice from an MSE supplier that is still unpaid and overdue at 31 March cannot reduce that year’s taxable profit.
If you are the supplier: getting paid
- Put your Udyam registration number on your quotations and invoices, and state the credit period in writing.
- Send a polite reminder before the due date, not only after it.
- After the due date, remind again and mention the interest under the MSMED Act, calmly and without threats. Our reminder templates in Hindi, Hinglish and English are a starting point.
- If the buyer still does not pay, you can file a delayed-payment application on the government’s MSME Samadhaan portal, which goes to the Micro and Small Enterprises Facilitation Council of your state.
If you are the buyer: staying on the right side
- Record each supplier’s MSME status and category (micro, small or medium) in your books.
- Track acceptance dates, not just invoice dates.
- Before 31 March, list MSE invoices that are overdue and pay them if you want the deduction this year.
How Munshiji helps
Munshiji shows every unpaid invoice by customer and age, and sends WhatsApp reminders and reminder calls on a schedule you set, with each promise to pay on record. It does not decide legal questions or file Samadhaan applications for you; your CA or advocate does that.
Common questions
What is the MSME 45-day payment rule?
Under section 15 of the MSMED Act, 2006, a buyer must pay a micro or small supplier by the date agreed in writing, and that agreed period cannot be more than 45 days from the day the goods or services were accepted. With no written agreement, payment is due within 15 days.
What interest applies on late payment to an MSME?
Section 16 says the buyer owes compound interest, with monthly rests, at three times the Bank Rate notified by the Reserve Bank of India, from the day after the payment was due.
Does Section 43B(h) apply to medium enterprises?
No. Section 43B(h) of the Income-tax Act covers payments due to micro and small enterprises only. Medium enterprises are not covered.
Does the rule apply to traders?
Traders registered on Udyam for priority-sector lending are widely treated as outside the delayed-payment protection. Ask your CA how it applies to a particular supplier.
Can the interest paid to an MSME be claimed as an expense?
No. Section 23 of the MSMED Act says interest paid under this rule is not allowed as a deduction when computing income tax.
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