MSME Delayed Payment Interest Calculator (MSMED Act Section 16)

How MSME delayed payment interest works

Chapter V of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 protects micro and small suppliers from buyers who pay late. Three sections do most of the work:

Section 15 sets the deadline. The buyer must pay by the date agreed in writing, and that date cannot be more than 45 days after the goods or services were accepted. If nothing was agreed in writing, payment is due within 15 days of acceptance.
Section 16 sets the penalty. If the buyer misses the deadline, it owes compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. This applies whatever the contract says.
Section 17 makes the buyer liable to pay the amount due together with that interest.

When does interest start?

Everything is counted from the day of acceptance. Under Section 2(b), that is the day the goods are delivered or the service is performed. If the buyer objects in writing within 15 days of delivery, it is the day the supplier fixes the objection. If the buyer does not object within 15 days, the supplies are treated as accepted on the day of delivery (deemed acceptance).

Situation	Payment due by	Interest runs from
Written agreement of up to 45 days	The agreed date	The day after the agreed date
Written agreement of more than 45 days	45 days after acceptance (the extra days do not count)	The 46th day after acceptance
No written agreement	15 days after acceptance	The "appointed day", which is the 16th day after acceptance

How the interest is calculated

The annual rate is three times the RBI bank rate. With the bank rate at 5.75%, it is 17.25% a year. "Monthly rests" means interest is added to the amount owed at the end of each month, and the next month's interest is charged on that larger amount.

Amount after n full months = Principal × (1 + annual rate ÷ 12)ⁿ
Interest = Amount after n months × (1 + annual rate × leftover days ÷ 365) − Principal

Worked example. An invoice of ₹1,00,000 is accepted on 1 January 2026 with no written credit period. Payment is due by 16 January, and interest runs from 17 January. If the buyer pays on 16 March, that is two full months late, so the interest is ₹1,00,000 × (1.014375² − 1) = ₹2,895.66.

For the leftover days in a part-month, this calculator charges interest pro rata on the compounded balance. Some councils count part-months differently, so small differences are normal.

Which bank rate should you use?

The Bank Rate is set by the RBI and moves with its policy rates. It has been 5.75% since 7 October 2026, when the RBI raised the repo rate to 5.50%. You can always check the current figure on the RBI home page. The Act does not say whether to use the rate on the due date or the rate in force through each period, and practice varies. If the rate changed while your invoice was overdue, you can run the calculator with each rate, or ask your adviser which one your council applies.

Who is covered, and who is not

Covered: suppliers that are micro or small enterprises with a valid Udyam Registration, selling goods or services to any buyer, including companies, firms, PSUs and government departments.
Not covered: medium enterprises. Retail and wholesale traders can register on Udyam, but the government has limited their benefit to priority sector lending, so they generally cannot claim this interest.
Register before you supply. The Supreme Court has held that the supplier should be registered before the contract to claim these benefits. If you are not registered yet, get your Udyam Registration before your next order.

Section 43B(h): why buyers now pay MSMEs on time

The Finance Act, 2023 added clause (h) to Section 43B of the Income-tax Act, 1961. From financial year 2023-24, if a buyer owes money to a micro or small enterprise and pays it later than the time allowed by Section 15 of the MSMED Act, the buyer can deduct that expense only in the year it actually pays. An unpaid purchase at the end of March can therefore increase the buyer's taxable profit for that year.

On top of that, Section 23 of the MSMED Act says the interest a buyer pays under Section 16 is never tax deductible. Companies must also report dues to micro and small enterprises in their accounts (Section 22) and file a half-yearly MSME Form 1 with the Registrar of Companies for payments outstanding beyond 45 days. Mentioning these points in a polite reminder often gets an invoice paid without a dispute.

What to do if the buyer still does not pay

Send a written demand. Use the draft above, attach copies of the invoices and proof of delivery, and keep a record of when it was received.
File on MSME Samadhaan. Apply online at samadhaan.msme.gov.in. Your application goes to the Micro and Small Enterprises Facilitation Council of your state.
Conciliation, then arbitration. Under Section 18, the council first tries to settle the dispute. If that fails, it decides the case as an arbitrator, and the Act asks for a decision within 90 days of the reference.
The buyer must deposit to challenge an award. Under Section 19, a buyer that wants a court to set aside the council's award must first deposit 75% of the amount awarded.

Official sources

Frequently Asked Questions

What is the interest rate on delayed payments to MSMEs?

Under Section 16 of the MSMED Act, 2006, the buyer pays compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. With the bank rate at 5.75% (since 7 October 2026), that is 17.25% a year.

Within how many days must a buyer pay an MSME?

Within the period agreed in writing, which cannot be more than 45 days from the day the goods or services are accepted. If there is no written agreement, payment is due within 15 days of acceptance.

Can a contract waive MSMED Act interest?

Section 16 applies notwithstanding anything in any agreement, so a clause that removes or lowers the interest does not override it, and an agreed credit period above 45 days is treated as 45 days.

Does the MSMED Act delayed payment rule apply to medium enterprises?

No. The protection covers suppliers that are micro or small enterprises. Medium enterprises and Udyam-registered traders are generally not covered.

What is Section 43B(h) of the Income Tax Act?

From financial year 2023-24, a buyer can deduct an amount owed to a micro or small enterprise only in the year it is actually paid, if it is paid later than the time allowed by Section 15 of the MSMED Act. Late payment can therefore push the buyer's expense into a later year and raise its tax for the current year.

Where can an MSME file a delayed payment complaint?

With the Micro and Small Enterprises Facilitation Council (MSEFC) of its state under Section 18, usually online through the MSME Samadhaan portal. The council first tries conciliation and then arbitration, and is meant to decide within 90 days.

Is interest under the MSMED Act tax deductible for the buyer?

No. Section 23 of the MSMED Act says interest paid under Section 16 is not allowed as a deduction when computing income under the Income-tax Act.

Do I need Udyam Registration to claim interest?

Yes. The Act protects a supplier that has registered as a micro or small enterprise, which today means holding a Udyam Registration. Courts have held that the registration should be in place before the supply contract, so register as early as you can.

MSME Delayed Payment Interest Calculator

Calculate interest on late payments

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