The 45-day payment rule for small suppliers
Under the MSMED Act 2006, a buyer must pay a registered micro or small enterprise within the agreed period or 45 days from acceptance, whichever is earlier. Late payment attracts compound interest at three times the RBI bank rate, with monthly rests, as a statutory liability.
Small suppliers in India generally believe their payment terms are whatever the buyer decides. For a registered micro or small enterprise, that belief is wrong, and the gap between what the law says and what most suppliers think it says is worth a great deal of money.
What section 15 does
The Micro, Small and Medium Enterprises Development Act 2006 sets a ceiling on how long a buyer may take. Payment is due on the date agreed in writing between the parties. Where no date was agreed, it is due within fifteen days of acceptance. And in no case may the agreed period exceed forty-five days from the day of acceptance or deemed acceptance.
The last part is the one that matters. A purchase order specifying ninety-day credit does not override this for the purposes of the Act. The contract can say what it likes; forty-five days is the outer limit that triggers the statutory consequence.
“Acceptance” means the buyer accepting the goods or services. “Deemed acceptance” covers the case where the buyer raises no objection in writing within fifteen days of delivery — after which they are treated as having accepted, whether or not they said so.
The date on which payment becomes overdue is called the appointed day. Everything after that is late.
What section 16 does
On failure to pay by the appointed day, the buyer is liable to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India.
Three things about that sentence carry weight.
It is a statutory liability, not a contractual one. It does not depend on your invoice terms, on a clause in the purchase order, or on the buyer agreeing to it. It arises by operation of law. A buyer cannot decline it.
The rate is not yours to set. It is three times the RBI Bank Rate — not the repo rate, which is a different number people frequently confuse it with. The RBI raised the Bank Rate to 5.75% on 7 October 2026, which makes the statutory rate 17.25% a year. If an overdue period runs across a rate change, each stretch is calculated at the rate then in force.
Monthly rests compound faster than intuition suggests. On a one lakh invoice at a 5.75% Bank Rate, a year’s delay adds about ₹18,681, against ₹17,250 under simple interest. Two years adds about ₹40,853. The interest calculator does the arithmetic on your own figures.
The income tax rule that makes buyers pay on time
Since 1 April 2024, a buyer who owes a micro or small enterprise money past the section 15 deadline, and has still not paid it on the last day of the financial year, loses the tax deduction for that expense in that year. They get it only in the year they actually pay. That was section 43B(h) of the Income-tax Act 1961.
The Income-tax Act 2025 took effect on 1 April 2026 and carries the same rule forward as section 37(2)(g). Years before tax year 2026-27 are still decided under section 43B(h); from tax year 2026-27 the new section applies. The substance is unchanged: an overdue, unpaid amount owed to a micro or small enterprise at year end is not deductible that year.
Two details matter in practice. Paying after 31 March but before the return is filed does not rescue the deduction for the earlier year — this clause is excluded from that relief. And it applies to amounts owed to micro and small enterprises only, not medium ones.
For a supplier this is leverage. A buyer’s finance team will move faster in February and March than at any other point in the year, because unpaid MSE invoices now cost them tax. If you have overdue invoices with larger buyers, the last quarter of the financial year is when to chase them. The MSE payment deadline checker shows a buyer exactly which invoices are at risk.
Section 23 of the MSMED Act, which buyers care about too
Interest paid under section 16 is not allowed as a deduction for computing the buyer’s income.
This is the clause that changes conversations. A finance team hearing that they owe interest may shrug. The same team hearing that the interest is also non-deductible, and that the disallowance sits in their own tax computation, tends to pay attention. Mention it.
Who this actually covers
The remedy is available to suppliers who are micro or small enterprises, and in practice that means holding a Udyam registration. Medium enterprises are outside it. Unregistered businesses are outside it and are left with ordinary contractual interest and civil remedies. Retail and wholesale traders registered on Udyam are generally treated as outside the delayed-payment provisions as well, so a trading business should check its position before relying on them.
If you are eligible and not registered, Udyam registration is free, done online, and takes an afternoon. It is the single highest-return piece of paperwork available to a small Indian supplier, and a large share of eligible businesses have never done it.
What you do with it
In a reminder. Most reminders read as requests, which is why they get filed. A reminder that states the appointed day, the number of days overdue and the accrued statutory interest reads as a notice. The framing shift is the whole point: you are not asking for a favour, you are stating a position. Our reminder writer builds that message at three escalation levels.
Through MSME Samadhaan. A registered supplier can file a delayed-payment reference with the Micro and Small Enterprise Facilitation Council for the relevant state through the Samadhaan portal. The Council first attempts conciliation and can then take up arbitration. Filing costs nothing.
Two things are worth knowing before you file. First, a reference is public — filings are visible, and buyers are aware of that, which is part of why the mere prospect of one moves money. Second, section 19 requires a buyer challenging an award to deposit seventy-five per cent of the amount before the challenge will be entertained. That materially changes the economics of stalling.
What it costs you
A commercial reality worth naming plainly: enforcing this against a large customer you depend on can end the relationship. Not always, and less often than small suppliers fear, but sometimes.
The judgement is yours, and it is a business judgement rather than a legal one. What should not happen is deciding not to enforce because you did not know the position existed. Knowing you have the option and choosing not to use it this quarter is a decision. Not knowing is not.
Keep the evidence
The dates that matter in a dispute are the ones you can evidence. Keep the delivery or completion record, the acceptance or the absence of any written objection within fifteen days, the invoice, and your reminders with their timestamps.
That is the practical case for invoicing from a system rather than from a folder of spreadsheets: not the invoice itself, but the trail around it. THQT keeps that trail without you having to think about it.
This is an explanation of how the provisions work, not legal advice. Whether the Act applies to a particular supply, and what your position is on specific facts, is a question for a professional before you send a formal notice or file a reference.
Sources
- Micro, Small and Medium Enterprises Development Act 2006, sections 15, 16, 18, 19 and 23.
- Income-tax Act 1961, section 43B(h), inserted by the Finance Act 2023 with effect from 1 April 2024.
- Income-tax Act 2025, section 37(2)(g), in force from 1 April 2026.
- Reserve Bank of India, Monetary Policy Statement of 7 October 2026, for the Bank Rate of 5.75%.