About the MSME 45-Day Rule
The Micro, Small and Medium Enterprises Development Act, 2006 sets a time limit for paying suppliers that are micro or small enterprises. Where buyer and supplier have agreed a credit period in writing, payment is due on the agreed date, but the period cannot go beyond 45 days from the day the goods or services are accepted. Where nothing is agreed in writing, payment is due within 15 days.
A buyer who misses this limit owes compound interest with monthly rests at three times the Bank Rate notified by the Reserve Bank of India, and that interest cannot be claimed as a business expense. Since the introduction of Section 43B(h) of the Income-tax Act, a late-paid amount is also allowed as a deduction only in the year in which it is actually paid.
This calculator takes the date of acceptance, the agreed terms and the invoice amount, and returns the last date for payment, the days overdue and an estimate of the interest that has built up. The Bank Rate is an editable field because it changes; the pre-filled figure is only a placeholder, and the result is a guide, not a legal computation.
How to use it
- 1Enter the date on which the goods were delivered or the services were accepted.
- 2Say whether a written agreement fixes the payment period and, if so, enter the agreed number of days.
- 3Enter the outstanding invoice amount and the current RBI Bank Rate, after checking it on the RBI website.
- 4Read the due date, the days overdue or remaining, and the estimated interest. Change the last date field to work out interest up to the day you expect to pay.
How this is calculated
With a written agreement: due date = date of acceptance + agreed days, limited to 45 days. Without a written agreement: due date = date of acceptance + 15 days. Interest rate = 3 × RBI Bank Rate, compounded with monthly rests from the day after the due date. Estimate used here: Amount × (1 + rate ÷ 12)^(whole months) × (1 + rate × remaining days ÷ 365) − Amount.
Frequently asked 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 enterprise by the date agreed in writing, and that date cannot be later than 45 days from acceptance of the goods or services. If there is no written agreement, payment is due within 15 days. A longer period in a purchase order does not override the limit.
Which suppliers does the rule protect?
It protects suppliers classified as micro or small enterprises that hold Udyam registration. Medium enterprises are not covered by the delayed-payment provisions, and the position of traders has been debated. Ask your supplier for the Udyam certificate and check its classification and date, because the status at the time of the transaction is what matters.
How is interest on delayed payment calculated?
Section 16 provides for compound interest with monthly rests at three times the Bank Rate notified by the Reserve Bank of India, running from the day after the due date until payment. This tool compounds full months and adds simple interest for the remaining days. It applies even if the contract mentions a lower rate or no interest at all.
What is the income-tax effect of paying late?
Under Section 43B(h) of the Income-tax Act, 1961, an amount payable to a micro or small enterprise beyond the Section 15 time limit is deductible only in the year of actual payment, which can raise the buyer's taxable income for the year. Interest paid under the MSMED Act is not deductible at all. Confirm the current provisions with your tax adviser.
What can a supplier do if the buyer does not pay?
A registered micro or small enterprise can file an application with the Micro and Small Enterprises Facilitation Council through the MSME Samadhaan portal. The council first attempts conciliation and can then take the matter up for arbitration. It helps to keep the purchase order, invoices, delivery proof and Udyam certificate ready before filing.