MSME 45 Days Payment Rule: 43B(h), Interest and Invoicing

Quick answer: The MSME 45 days payment rule comes from section 15 of the MSMED Act, 2006. Buyers must pay registered micro and small suppliers within the agreed period, which cannot exceed 45 days from acceptance, or within 15 days if nothing is agreed in writing. Late payment attracts compound interest at three times the RBI bank rate, and buyers lose the tax deduction until they pay.

For small suppliers in India, this is one of the few laws that puts real pressure on large customers to pay on time. For buyers, it is a compliance item that can raise their tax bill if they get it wrong. This guide explains how the MSME 45 days payment rule works, the interest on delayed payment, the income tax rule that used to be section 43B(h) and how it maps under the Income Tax Act 2025, and what to put on your invoices.

Note: This is general information, not legal or tax advice. The MSMED Act was amended by Parliament in 2026 and the new provisions depend on government notification. Check the current position with a chartered accountant or lawyer before acting on a disputed invoice.

What the MSME 45 days payment rule says

Section 15 of the MSMED Act sets an "appointed day" by which a buyer must pay a supplier that is a micro or small enterprise:

• If a payment period is agreed in writing, payment is due on the agreed date, but the agreed period cannot exceed 45 days from the day of acceptance or deemed acceptance.
• If nothing is agreed in writing, payment is due within 15 days of acceptance.
• Acceptance is the date the goods or services are accepted. If the buyer does not object in writing within 15 days of delivery, the delivery date counts as acceptance. If the buyer objects within that window, acceptance is the day the objection is removed.

So 45 days is a ceiling, not a default. A contract can say 30 days, and then 30 days applies. A contract that says 90 days does not stretch the statutory deadline beyond 45.

Who is covered by the MSMED Act payment terms?

Supplier type	Covered by 45-day rule?	Notes
Micro enterprise with Udyam registration	Yes	Investment up to Rs 2.5 crore and turnover up to Rs 10 crore
Small enterprise with Udyam registration	Yes	Investment up to Rs 25 crore and turnover up to Rs 100 crore
Medium enterprise	No	Registered MSME, but outside chapter V protections
Retail or wholesale trader on Udyam	Generally no	Trader inclusion was for priority sector lending
Unregistered small business	Usually no	The protection is tied to registration; get your Udyam registration done

The rule protects the supplier, so it applies whoever the buyer is: a large company, a government department, or another small business.

Interest on delayed payment under section 16

If the buyer misses the appointed day, section 16 makes them liable to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. Interest runs from the day after the appointed day until payment. Section 16 applies "notwithstanding anything contained in any agreement", so a contract cannot waive it.

The bank rate moves with RBI policy. After the RBI raised the repo rate to 5.50% on 7 October 2026, reports put the bank rate at 5.75%, which would make the statutory rate 17.25% a year. Check the RBI website for the rate that applies to your period, because it may change during a long delay.

Worked example: interest on a late invoice

Meera's micro enterprise supplies printed packaging worth Rs 2,00,000 to a manufacturer. Delivery and acceptance are on 1 July 2026, and the written terms say 45 days, so the appointed day is 15 August 2026. The buyer pays on 15 October 2026, two months late.

• Assume a bank rate of 5.75% for simplicity, so the statutory rate is 17.25% a year, or about 1.4375% a month.
• Compound monthly for two months: Rs 2,00,000 x (1.014375 x 1.014375 - 1) = about Rs 5,791.
• Meera can claim about Rs 5,791 of interest on top of the invoice amount.

Section 23 adds a sting for buyers: this interest is not deductible for the buyer's income tax. A real calculation should use the bank rate actually in force for each month and the exact days, so treat this as an illustration.

Section 43B(h): the income tax rule for buyers

The Finance Act 2023 added clause (h) to section 43B of the Income-tax Act, 1961, from assessment year 2024-25. It says that any sum payable to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act is deductible only in the year it is actually paid.

Two features make it bite:

• No grace until the return date. Other section 43B items, such as some taxes, are allowed if paid before the return due date. Clause (h) has no such relief.
• Year-end timing. An invoice that is overdue at 31 March and paid in April shifts the deduction into the next year, raising this year's taxable profit.

How it maps under the Income Tax Act 2025

The Income Tax Act 2025 replaced the 1961 Act from 1 April 2026, with tax year 2026-27 as the first tax year under the new law. A Ministry of Finance reply in Parliament, as reported by professional publications, says the new provision corresponding to section 43B(h) is section 37(2)(g) of the Income-tax Act, 2025. The substance is reported to be unchanged: deduction only on actual payment when the MSMED deadline is missed. Income earned up to 31 March 2026 is still governed by the 1961 Act. We recommend confirming the exact section number against the official Act and any CBDT clarification before quoting it in a filing.

Buyer example: year-end timing

Scenario	Invoice accepted	Agreed term	Paid on	Deduction year
A: paid on time	1 March 2027	30 days	25 March 2027	Tax year 2026-27
B: late, paid after year end	1 March 2027	30 days	20 April 2027	Tax year 2027-28
C: no written term	20 March 2027	None (15 days)	10 April 2027	Tax year 2027-28

In scenarios B and C the buyer pays within a few weeks, but because the payment misses the statutory deadline and crosses 31 March, the expense moves into the following year.

The MSMED Amendment Bill 2026

Parliament passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 in early August 2026. Reported changes focus on enforcement: time limits for mediation and arbitration before facilitation councils, faster deposit of part of an award when a buyer challenges it, recovery of awards as arrears of land revenue, and wider use of the TReDS invoice discounting platforms. Commentary we reviewed says the 45-day ceiling, the 15-day default and the interest formula are not changed. Provisions only take effect on dates notified by the central government, so check the Gazette or the Ministry of MSME for commencement before relying on any new procedure.

What MSME suppliers should put on invoices

The MSME 45 days payment rule is easier to enforce when your paperwork is clear from the start:

1. Show your Udyam number and category (micro or small) on every invoice and quotation.
2. State the payment term in writing, no more than 45 days, and tie it to acceptance. See our guide to invoice payment terms.
3. Add an interest note, for example: "Delayed payment attracts compound interest under section 16 of the MSMED Act, 2006."
4. Record delivery and acceptance with a signed delivery note or email acknowledgement.
5. Include the buyer's PO number so the invoice can be matched quickly.
6. Follow up early. Our guide to handling an overdue invoice has reminder wording you can adapt.

Our free invoice generator lets you add your Udyam number in your business details or notes, set terms in the notes field, include a PO number and show amount paid and balance due. It builds the PDF in your browser; it does not send reminders, calculate MSMED interest or track payments, so keep a simple receivables log alongside it. For GST fields, use our GST invoice guide.

Recovering a late payment, step by step

Most late payments are fixed with a reminder. When they are not, the MSMED Act gives you a structured route that does not need a civil court.

1. Check your facts. Confirm you were a registered micro or small enterprise on the supply date, find the written payment term, and note the acceptance date.
2. Send a dated reminder a few days after the due date. Quote the invoice number, amount, due date and your Udyam number, and mention that statutory interest applies from the day after the due date.
3. Escalate in writing after two or three weeks, copying the buyer's finance head. Attach the delivery acknowledgement and invoice. Many large buyers settle at this point because overdue MSME balances must be reported.
4. File with the facilitation council. If the buyer still does not pay, file a reference with the Micro and Small Enterprises Facilitation Council in your state, now typically through the Ministry of MSME's online dispute resolution portal. Older Samadhaan filings continue to be processed.
5. Conciliation, then arbitration. The council first tries conciliation. If that fails, it arbitrates or refers the case to arbitration, and the award carries the statutory interest.
6. Enforcement. A buyer who challenges an award in court generally has to deposit a large part of the amount first, which discourages delaying tactics.

Keep the tone factual throughout. You may still want to work with the buyer after the dispute is over.

The MSME 45 days payment rule for freelancers and service providers

The rule is not only for factories. Freelance designers, developers, consultants and agencies that register on Udyam as micro enterprises are suppliers of services, and the same deadlines apply when a business client pays them. In practice, two things matter more for service providers than for goods suppliers.

• Acceptance is less obvious. There is no delivery note for a website or a report. Ask the client to confirm completion by email, or define acceptance in your contract, such as "deliverables are accepted 7 days after delivery unless the client raises written objections".
• Milestone billing helps. Invoicing per milestone gives each invoice its own acceptance date and shortens the period you are out of pocket.

Combined with clear terms and a polite reminder routine, the statutory protection gives a small supplier a fair chance of being paid on time without souring the relationship.

What buyers should do

• Classify suppliers. Ask every vendor for their Udyam certificate at onboarding and record their category.
• Fix contract terms. Replace 60 or 90-day terms for micro and small suppliers with terms of 45 days or less. Our article on net 60 and net 90 payment terms explains the commercial trade-offs.
• Run an ageing report by supplier category every month, and especially before 31 March.
• Report correctly. Companies generally report overdue amounts owed to micro and small enterprises to the MCA in MSME Form I every half year, and auditors report section 43B(h) or its successor in the tax audit report.
• Account for interest. Unpaid statutory interest is a liability and is not tax-deductible.

Buyers deducting TDS on professional or contract payments still apply TDS as usual; see our guide to TDS on professional fees. More guidance is in our tax compliance category.

Conclusion

The MSME 45 days payment rule gives micro and small suppliers a statutory deadline, real interest and a tax lever on buyers who pay late. It only works if you are registered, your terms are in writing and your invoices make your status obvious. Get your Udyam certificate, set terms of 45 days or less, and build a clear invoice in our free invoice generator. For disputes or large sums, speak to a qualified adviser.