MSME Late Payment Interest Calculator

Three times the RBI bank rate, compounded monthly. The RBI bank rate is currently 6.5%, which makes the MSMED interest rate 19.5% per annum. The rate is set by Section 16 of the MSMED Act 2006 and applies automatically once the payment crosses the appointed day. Accounts payable software can flag this before the due date is missed.

From the day after the appointed day. The appointed day is the date agreed in writing (capped at 45 days from the day of acceptance) or, if no written agreement exists, the 15th day after acceptance. Acceptance is the day the buyer takes delivery, or the day a written-recorded defect is removed.

Section 15 caps the agreed credit period at 45 days from the day of acceptance of goods or services. Any contract term that goes beyond 45 days is void to that extent; Section 15 overrides the contract. If the buyer does not pay by the appointed day, Section 16 interest kicks in automatically. See how to model MSME payment terms across your vendors.

Compound, with monthly rests. The formula is A = P × (1 + r/12)^n where P is principal, r is the annual rate (3x RBI bank rate), and n is the number of months overdue. Monthly compounding means the previous month's interest is added to the principal before the next month's interest accrues.

For a ₹5,00,000 invoice dated 1 March 2026 with 30-day terms, paid on 15 August 2026: due date is 31 March, days overdue is 137, months overdue is 4.50. Interest at 19.5% compounded monthly = ₹5,00,000 × ((1 + 0.195/12)^4.50 − 1) = ₹37,950. The buyer pays ₹5,37,950 in total.

No. Section 23 of the MSMED Act disallows the interest as a deduction under the Income Tax Act. The buyer pays the interest AND cannot reduce taxable income with it. At a 25% effective tax rate, the disallowance adds another ~25% on top of the interest, making the true cost of delay closer to 25% per annum.

Section 43B(h), inserted by the Finance Act 2023 and effective from AY 2024-25, lets a buyer deduct an expense payable to a Micro or Small enterprise only in the year it is actually paid, if the payment is delayed beyond the Section 15 limit of the MSMED Act (45 days with a written agreement, 15 days without). Unlike other Section 43B items, the relief of paying before the income-tax return due date does not apply, so the deduction is deferred to the year of actual payment. OneFinOps automates MSME 43B(h) compliance from vendor Udyam status to the tax-year cutoff.

The principal. Section 43B(h) defers the deduction of the purchase expense (the principal payable to a Micro or Small enterprise) until it is actually paid, when payment is late. The Section 16 interest is separately non-deductible under Section 23 of the MSMED Act. A late payment therefore carries two distinct tax costs: the deferred principal deduction under 43B(h) and the permanently disallowed interest under MSMED Act Section 23.

No. Section 43B(h) applies only to amounts payable to Micro and Small enterprises. Medium enterprises are outside its scope, the same way Section 15-16 of the MSMED Act covers only Micro and Small suppliers. Always confirm the supplier Udyam classification as of the invoice date, which is easiest with structured vendor management.

File a complaint with the Micro and Small Enterprise Facilitation Council (MSEFC) in the state where the supplier is located. The Council must dispose of the complaint within 90 days. The Council's award is enforceable as a civil-court decree. Independently, the supplier can also approach a civil court, although MSEFC is faster.

Yes. The MSMED Act binds Central and State government departments, PSUs and any other buyer. PSUs are also required to upload their MSME outstanding on the SAMADHAAN portal every month. Government buyers are not exempt from the 45-day rule or the Section 16 interest.

The full text is on the Ministry of MSME website (msme.gov.in) and on the India Code repository (indiacode.nic.in). Sections 15 to 24 are the chapter on delayed payments. Section 22 (disclosure) and Section 23 (tax non-deductibility) often surprise buyers, so worth reading those in full.

No. Section 16 begins with "Notwithstanding anything contained in any agreement…", which means it overrides contract terms. A buyer cannot insist on a no-interest clause or a lower rate; the statute is unwaivable. Suppliers may, however, choose not to claim the interest as a commercial decision.