The rules
The law that protects your payments
Three provisions decide when a buyer must pay a micro or small supplier and what paying late costs them. Each one below is quoted from the Act, explained in plain words and worked through with an example.
Liability of buyer to make payment
MSMED Act, 2006
Your buyer must pay by the date agreed in writing. With nothing in writing, they must pay within 15 days of accepting the goods or services. No written term can stretch past 45 days.
- A due date agreed in writing counts, but never more than 45 days after acceptance.
- With nothing in writing, the buyer must pay within 15 days of acceptance.
- A purchase order that says 60 or 90 days does not move the legal due date past day 45.
Example Goods accepted on 1 Aug 2026 with nothing in writing are due by 16 Aug 2026 (15 days). With a 60-day term in writing, they are still due by 15 Sep 2026: the term is capped at 45 days.
The Act says
“Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.”
Date from which and rate at which interest is payable
MSMED Act, 2006
Pay late and the buyer owes compound interest, added every month, at three times the RBI Bank Rate. It starts the day after the due date, and no contract can waive it.
- Interest runs from the day after the due date at 3 × the RBI Bank Rate, now 16.50% a year.
- It compounds monthly: each month's interest is added before the next month is worked out.
- No contract term can waive it, whatever the buyer's paperwork says.
Example A ₹1,00,000 invoice due on 16 Aug 2026 and still unpaid on 15 Sep 2026 is 30 days late. The buyer owes ₹1,356 in interest on top, ₹1,01,356 in all.
The Act says
“Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.”
Certain deductions to be only on actual payment
Income-tax Act, 1961
Inserted by the Finance Act 2023 from FY 2023–24: a buyer who pays a micro or small supplier after the Section 15 limit can claim that expense only in the year they actually pay.
- Applies to buyers' income from FY 2023–24 onwards.
- Pay a micro or small supplier after the Section 15 limit, and the expense counts only in the year it is paid.
- Unpaid by 31 March, the buyer loses the deduction for that year. That is your strongest reminder.
Example If the invoice above is still unpaid on 31 Mar 2027, the buyer cannot deduct it for FY 2026–27, and pays more tax that year.
The Act says
“… a deduction otherwise allowable under this Act in respect of … any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 … shall be allowed … only in computing the income … of that previous year in which such sum is actually paid by him.”
Who is covered, and when the clock starts
Covered
Udyam-registered micro and small manufacturers and service providers, selling to any buyer.
Not covered
Medium enterprises. Retail and wholesale traders on Udyam get priority-sector lending only, so ask your CA before relying on Sections 15 and 16.
Day of acceptance
The day the goods or services are delivered, unless the buyer objects in writing within 15 days. Then it is the day the objection is settled.
If they still don't pay
Section 18 of the MSMED Act lets you refer the dispute to your state's Micro and Small Enterprises Facilitation Council, through the MSME Samadhaan portal. The council first tries conciliation, then arbitration.