The MSME 45-day payment rule, explained
If you buy from a micro or small enterprise registered on Udyam, you must pay by the date agreed in writing, and never later than 45 days after accepting the goods or services. With no written agreement the limit is 15 days. Pay late and the supplier can claim compound interest at three times the RBI bank rate, file a case on MSME Samadhaan, and you lose the tax deduction until the year you pay.
Who the rule protects
Only micro and small enterprises registered on Udyam as manufacturers or service providers. Since 1 April 2025 the limits are:
| Category | Investment in plant, machinery or equipment | Annual turnover | Covered by the 45-day rule? |
|---|---|---|---|
| Micro | up to ₹2.5 crore | up to ₹10 crore | Yes |
| Small | up to ₹25 crore | up to ₹100 crore | Yes |
| Medium | up to ₹125 crore | up to ₹500 crore | No |
| Trader on Udyam | - | - | No (registered for priority-sector lending only) |
Ask every supplier for its Udyam certificate and record the category in your vendor master. The category on the certificate decides the rule, not the size you assume.
Working out the deadline
| Situation | Payment due by |
|---|---|
| Written agreement with a period of 45 days or less | The agreed date |
| Written agreement with a longer period (60, 90 days) | 45 days from acceptance |
| No written agreement | 15 days from acceptance |
Acceptance is the day the goods or services are actually delivered. If you raise a written objection within 15 days of delivery, the clock starts on the day the objection is resolved. Silence for 15 days counts as acceptance.
Example
Goods from a small enterprise arrive on 20 February 2026 under a purchase order that says 60 days. The law caps it at 45 days, so the bill is due on 6 April 2026. Pay by 6 April and the expense stays in FY 2025-26, even though you paid after 31 March. Pay on 10 April and you owe four days of interest, and the expense moves to FY 2026-27, the year you paid.
What happens when you pay late
- Interest under section 16. Compound interest with monthly rests at three times the RBI bank rate, from the due date to the date of payment, regardless of what the contract says. It is not deductible for income tax.
- Loss of deduction under section 43B(h). From FY 2023-24, an expense owed to a micro or small enterprise is allowed only in the year it is actually paid, if it was paid after the 45-day (or 15-day) deadline. Bills still unpaid on 31 March past their deadline are added back to that year's income. The Income-tax Act, 2025, which applies from 1 April 2026, carries a similar rule.
- A case on MSME Samadhaan. The supplier files online; the state Facilitation Council tries conciliation and then arbitration, and should decide within 90 days. To appeal an award you must first deposit 75% of it.
- Disclosure. Companies report dues outstanding beyond 45 days in Form MSME-1 every half year and disclose MSME dues and interest in their financial statements. Auditors look at both.
A month-end routine for finance teams
- Tag every supplier with its Udyam number and category (micro, small, medium, trader).
- Put payment terms of 45 days or less in purchase orders to micro and small suppliers.
- Record the acceptance date on each GRN, not just the invoice date.
- Run a weekly ageing of micro and small supplier bills, sorted by due date.
- Before 31 March, clear every bill whose deadline has already passed, or provide for the tax add-back.
- File MSME-1 by 30 April and 31 October if you are a company.
Check your own bills
List supplier bills and see each legal deadline, the 43B(h) add-back, the extra tax and the interest exposure.
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Start Cortex →Frequently asked questions
What is the 45-day rule for MSME payments?
Under section 15 of the MSMED Act, 2006, a buyer must pay a micro or small enterprise by the date agreed in writing, which can never be more than 45 days from the day the goods or services were accepted. Without a written agreement the limit is 15 days.
Does the 45-day rule apply to medium enterprises?
No. The payment deadline, the interest under section 16 and the income-tax rule in section 43B(h) protect only micro and small enterprises. Bills from medium enterprises follow your normal contract terms.
Does it apply to purchases from traders?
Generally no. Retail and wholesale traders may register on Udyam, but only for priority-sector lending; they are not covered by the delayed-payment chapter of the MSMED Act, so 43B(h) does not apply to purchases from them.
What if our agreement says 60 or 90 days?
The law caps the agreed period at 45 days. A written term of 60 or 90 days is read as 45 days for the interest and the tax rule.
What interest can the supplier claim?
Compound interest with monthly rests at three times the bank rate notified by the RBI, from the due date until payment. The buyer cannot deduct this interest for income tax (section 23).
What is the tax impact under section 43B(h)?
If a bill is unpaid at year end and its deadline has passed, or it is paid after its deadline in the following year, the expense is not allowed in that year and is allowed only in the year of payment. The rule applies from FY 2023-24 (AY 2024-25).
How does a supplier complain about delayed payment?
On the MSME Samadhaan portal, which sends the case to the state's Micro and Small Enterprises Facilitation Council. The council first tries conciliation, then arbitration, and is expected to decide within 90 days. A buyer who challenges the award must first deposit 75% of the amount.
What is Form MSME-1?
A half-yearly return that companies file with the Ministry of Corporate Affairs, listing amounts due to micro and small suppliers for more than 45 days and the reason for the delay. It is due by 30 April and 31 October.
Related free tools and guides
Sources: Micro, Small and Medium Enterprises Development Act, 2006, sections 2(b), 15, 16, 18, 19, 22 and 23; Income-tax Act, 1961, section 43B(h) as inserted by the Finance Act, 2023; MCA order on Form MSME-1. This guide is general information; confirm specific cases with your CA.