The MSME 45-day payment rule: MSMED Act section 15 and Income-tax section 43B(h)

The 45-day rule in one paragraph

A buyer must pay a micro or small enterprise supplier on or before the date they agreed in writing. That agreed period can never be more than 45 days from the day the buyer accepts the goods or services, or is deemed to accept them (MSMED Act, 2006). If there is no written agreement, the buyer must pay within 15 days (MSMED Act, 2006, Finance Bill 2023, memorandum). A buyer who pays late owes compound interest with monthly rests at three times the bank rate notified by RBI (MSMED Act, 2006). Since assessment year 2024-25, the Income-tax Act also lets the buyer deduct such a late-paid amount only in the year it is actually paid (Finance Bill 2023, memorandum).

Who the rule protects

The rule protects a supplier that is a micro or small enterprise (Government of West Bengal, MSMED Act summary). Medium enterprises are not covered.

• Udyam registration is how you prove it. MSME Samadhaan, the government's delayed-payment portal, accepts cases from any micro or small enterprise with a valid Udyam registration (MSME Samadhaan portal). See the Udyam certificate guide.
• Traders are a special case. Retail and wholesale traders may register on Udyam, but the office memorandum that let them in limits their benefits to priority sector lending (Udyam Registration portal document). If you are a trader, ask a chartered accountant whether the payment rule covers your sales.

When the 45 days start

The clock starts on the day of acceptance or deemed acceptance (MSMED Act, 2006). The MSMED Act defines both (MSMED Act, 2006):

When payment is due

Interest on late payment

If the buyer misses the date, it owes compound interest with monthly rests at three times the bank rate notified by RBI. The interest runs from the appointed day or from the day after the agreed date, whatever the agreement between the parties says (MSMED Act, 2006).

RBI's bank rate was 5.50% as of 01-Oct-2026 (RBI current rates). Three times that is 16.5% a year, compounded monthly. The bank rate changes, so check the rate in force for each month of the delay.

The buyer also cannot claim that interest as a tax deduction. Section 23 of the MSMED Act disallows it, overriding the Income-tax Act (Government of West Bengal, MSMED Act summary).

Section 43B(h): the tax side of the rule

The Finance Act, 2023 added clause (h) to section 43B of the Income-tax Act, 1961 (Finance Bill 2023, memorandum):

• The rule. Any sum a buyer owes to a micro or small enterprise, beyond the time limit in section 15 of the MSMED Act, is allowed as a deduction only when it is actually paid.
• No grace until the return date. The usual relief in section 43B, which allows a deduction if the amount is paid by the return due date, does not apply to these payments.
• From when. It applies from assessment year 2024-25.
• Paid on time. A payment made within the section 15 limit is still deducted on the normal accrual basis.

The Income-tax Act, 2025, in force from 01-Apr-2026, carries the same rule (Income Tax Department). The tax effect falls on the buyer, not on you. Registration is how a buyer knows the rule applies to you. A chartered accountant should confirm how it applies to a buyer's own books.

What the buyer must disclose

A buyer whose annual accounts must be audited has to disclose, among other things, the principal and interest still unpaid to micro and small suppliers at the year end, and the interest paid for late payments during the year (Government of West Bengal, MSMED Act summary).

How to recover a late payment

1. Write to the buyer. Quote the invoice, the acceptance date, the agreed period and the interest due under section 16.
2. File on MSME Samadhaan. Any micro or small enterprise with a valid Udyam registration can file. The case goes to the Micro and Small Enterprises Facilitation Council of your state (MSME Samadhaan portal).
3. Conciliation, then arbitration. The council first tries conciliation. If that fails, it takes up arbitration itself or refers the dispute to an arbitration centre (MSMED Act, 2006).
4. Where it is heard. The council where the supplier is located has jurisdiction, wherever in India the buyer is (MSMED Act, 2006).
5. The time limit. The Act says every reference is to be decided within 90 days (MSMED Act, 2006).
6. If the buyer challenges the award. A court will not hear a buyer's application to set aside the award unless the buyer deposits 75% of the amount (MSMED Act, 2006).

There are 161 Micro and Small Enterprises Facilitation Councils across states and union territories, and an online dispute resolution portal for these cases opened in June 2025 (PIB factsheet, 11-Aug-2026).

What the 2026 amendment changes

Parliament passed the MSMED (Amendment) Bill, 2026 on 07-Aug-2026 (PIB press release, 07-Aug-2026). The Bill as introduced does not amend the 45-day limit in section 15 (MSMED (Amendment) Bill, 2026, as introduced). It changes how disputes are handled (PIB press release, 07-Aug-2026):

The amendment comes into force on dates the Central Government notifies in the Official Gazette, and different provisions can start on different dates (MSMED (Amendment) Bill, 2026, as introduced). As of 03-Oct-2026 we found no such notice. Until one appears, the dispute steps above are the ones in force. This page will carry the start dates when they are published.

Getting paid early without waiting

If a large buyer accepts your invoice, you can sell it on TReDS, where the deal is without recourse to you. The factoring guide and the working capital guide cover the other routes.

Your next step

Late payments squeeze working capital, and lenders read your receivables. Run the free loan readiness check to see how a lender may read your file. Then read about MSME registration benefits and TReDS.