The MSME 45-Day Payment Rule: Deadlines, Interest and Tax Consequences
A purchase order may say “60 days credit” or “90 days credit”.
That does not necessarily mean the buyer legally has 60 or 90 days to pay a qualifying micro or small enterprise.
Sections 15 and 16 of the Micro, Small and Medium Enterprises Development Act, 2006 create a separate statutory framework for delayed payments to qualifying micro and small suppliers. The payment deadline can also affect the buyer's income-tax deduction.
The first step, however, is to establish whether the supplier and transaction are covered.
Who should a buyer identify?
Businesses should maintain reliable information about suppliers claiming micro or small enterprise status, including their current classification, Udyam details, nature of activity and relevant registration records.
The MSME limits effective from 1 April 2025 are:
| ClassificationInvestmentTurnover | ||
|---|---|---|
| Micro | Up to ₹2.5 crore | Up to ₹10 crore |
| Small | Up to ₹25 crore | Up to ₹100 crore |
| Medium | Up to ₹125 crore | Up to ₹500 crore |
The delayed-payment provisions in Chapter V of the MSMED Act concern micro and small enterprises, not medium enterprises.
Supplier eligibility can involve factual and legal questions, particularly around registration dates and the nature of the supplier's activity. Those questions should be verified rather than inferred merely from an invoice carrying the words “MSME registered”.
How long does the buyer have to pay?
Section 15 distinguishes between transactions with and without a written agreement.
Where there is a written agreement
Payment should be made on or before the date agreed between the buyer and supplier.
But the agreed period cannot exceed 45 days from the day of acceptance or deemed acceptance.
A contractual 60-day or 90-day term therefore cannot extend the statutory ceiling beyond 45 days.
Where there is no written agreement
Payment must be made before the appointed day.
The appointed-day mechanism is linked to the statutory definition of acceptance or deemed acceptance and effectively creates the 15-day framework commonly referred to as the MSME 15-day payment rule.
The governing provision expressly caps a written agreement at 45 days.
Why the invoice date alone can be misleading
The Act works from the day of acceptance or deemed acceptance, not simply from whatever date appears on the supplier's invoice.
If the buyer raises a written objection regarding the goods or services within the prescribed period, the date on which the objection is removed can affect the acceptance date.
For that reason, a reliable MSME payment register should retain the delivery or service-completion date, written objections and their resolution—not merely invoice date and payment date.
What happens when payment is late?
Section 16 imposes a significant consequence.
Where payment is not made as required by Section 15, the buyer becomes liable for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India.
Where no written agreement governs the period, the interest mechanism runs from the appointed day. Where a written payment date applies, it runs from the date immediately following that agreed date, subject to Section 15's statutory ceiling.
Because the RBI bank rate can change, an interest calculator using only today's rate should be labelled an estimate when the delay spans different rate periods.
The interest itself is not tax-deductible
The MSMED Act separately addresses the tax treatment of the statutory interest.
Section 23 states that interest payable or paid by the buyer under the Act is not allowed as a deduction in computing income.
That should be distinguished from the treatment of the underlying purchase or expense.
What happens to the underlying expense for income-tax purposes?
For FY 2025–26 / AY 2026–27, Section 43B(h) of the Income-tax Act, 1961 applies.
Section 43B(h) provides that a sum payable to a micro or small enterprise beyond the time allowed under Section 15 of the MSMED Act is deductible on actual payment.
Unlike most other items covered by Section 43B, the usual relief for payment made before the income-tax return due date is expressly unavailable for clause (h).
From Tax Year 2026–27, the corresponding provision appears in Section 37(2)(g) of the Income-tax Act, 2025. The Income Tax Department's own MSME guide maps Section 43B(h) to Section 37(2)(g).
The core practical issue therefore remains the same: once the statutory MSMED payment period is breached, the timing of actual payment becomes important for the deduction.
Example 1: paid late, but before year-end
Assume a qualifying expense is otherwise deductible.
The applicable MSMED payment deadline expires during March, but the buyer pays the supplier later in March before the financial year ends.
The payment may still be late for MSMED Act purposes, and statutory interest may arise.
However, because actual payment occurred within that same financial year, the deduction does not necessarily move into a later year solely because the statutory payment period was breached.
The payment-law consequence and the tax-year consequence should therefore be shown separately.
Example 2: payment crosses into the next year
Now assume the statutory deadline has already expired before 31 March, the amount remains unpaid at year-end and payment is finally made in April.
Subject to the other conditions of the income-tax provision, the deduction moves to the year in which actual payment is made.
Paying in April before the return-filing due date does not bring Section 43B(h) relief back into the earlier year.
Example 3: the invoice is still within its MSMED deadline on 31 March
Suppose goods are accepted on 20 March under a valid written payment period of 45 days.
On 31 March, the statutory payment period has not yet expired.
That invoice should not automatically be treated as already disallowed merely because it is outstanding at year-end.
Its eventual treatment depends on whether payment is subsequently made within the applicable Section 15 period.
This is why “outstanding on 31 March” and “overdue under the MSMED Act” are not the same thing.
What should a business track?
A useful MSME payment control should connect four sets of information:
Supplier status: Classification and supporting registration details.
Acceptance: Delivery/service completion, written objection and resolution where applicable.
Payment: Statutory deadline, amount outstanding and actual payment date.
Tax: Whether the payment period was breached and the year in which actual payment occurred.
For companies, MSME-1 and financial-statement disclosure requirements should be assessed separately because their triggers are not identical to the income-tax disallowance test.
A note on the 2026 MSMED Amendment Act
The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 received Presidential assent on 13 August 2026.
However, the Act itself states that its provisions come into force on dates appointed through Gazette notification, and different provisions may commence on different dates. As of this article's legal review, no commencement notification replacing the Section 15 and Section 16 payment rules used above was identified.
Accordingly, a current compliance tool should not activate a 2026 amendment merely because the amending Act has received assent.
If the article is published after 24 September 2026, verify that this commencement-status statement is still correct before publishing it.
The practical takeaway
The MSME payment issue is not simply:
“Is the invoice older than 45 days?”
A better sequence is:
Supplier eligibility → Acceptance date → Written agreement → Statutory deadline → Actual payment → Interest → Deduction year.
That is the sequence a useful payment checker should follow.
Primary references: Sections 15, 16 and 23 of the Micro, Small and Medium Enterprises Development Act, 2006; Section 43B(h), Income-tax Act, 1961; Section 37(2)(g), Income-tax Act, 2025.
Last reviewed: 24 September 2026.