The MSME 45-day payment rule, explained (2026)

Last reviewed 19 October 2026. General information, not legal or tax advice.

In this guide

The rule in one paragraph
Who is protected
When the 45 days start
Interest on late payment
If the buyer still does not pay
What changed in 2026
Using the rule without damaging the relationship

The rule in one paragraph

Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 says a buyer must pay a micro or small supplier on or before the date agreed in writing — and that date cannot be more than 45 days after the buyer accepts the goods or services. If there is no written agreement, payment is due by the appointed day: the day after 15 days from acceptance. Pay later, and Section 16 makes the buyer liable for compound interest with monthly rests at three times the RBI Bank Rate, whatever the contract says.

Who is protected

The protection belongs to the supplier, and only if it is a micro or small enterprise registered on the Udyam portal. From 1 April 2025 the thresholds are:

Category	Investment in plant, machinery or equipment	Annual turnover	Covered by Sec 15–16?
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

The buyer can be anyone — a large company, a government department, a PSU or another MSME.

When the 45 days start

Acceptance: the day the buyer actually accepts the goods or services.
Deemed acceptance: if the buyer raises no written objection within 15 days of delivery, the goods or services are treated as accepted on the day of delivery.
If the buyer objects in writing within 15 days and the supplier later fixes the problem, the clock starts when the defect is removed.

Practical tip: keep delivery challans, GRNs and e-mails confirming receipt. They prove when acceptance happened, which decides when interest starts.

Interest on late payment

The rate is three times the Bank Rate notified by the RBI. The Bank Rate was 5.75% from 7 October 2026, which makes the Section 16 rate 17.25% a year, compounded every month. On a ₹5 lakh invoice paid 90 days late, that is roughly ₹21,600 of interest. Work out your own numbers with the MSME interest calculator.

The buyer cannot deduct this interest as a business expense (Section 23), and companies must disclose amounts unpaid to MSEs in their accounts (Section 22) and in the half-yearly MSME Form I filed with the MCA.

If the buyer still does not pay

Under Section 18, the supplier can refer the dispute to the Micro and Small Enterprises Facilitation Council (MSEFC) of its state, online through the MSME Samadhaan portal. The council first tries conciliation and then arbitration. A buyer that wants to challenge the council’s award in court must first deposit 75% of the amount (Section 19). By August 2026, MSME Samadhaan had received about 2.57 lakh applications worth ₹55,244 crore, according to CRISIL. Read how to file on Samadhaan.

What changed in 2026

Parliament passed the MSMED (Amendment) Act, 2026 in August 2026. As reported, it sets time limits for the facilitation councils — 90 days for mediation, 30 days to refer to arbitration and 90 days for the award — and requires courts to order part-payment of an award when a challenge drags on. The 45-day limit itself is unchanged. The amendment takes effect only from the date the government notifies; check the Gazette or PIB before relying on the new timelines.

Separately, the Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. The buyer-side tax rule in Section 43B(h) is reported to continue under the new Act — see our Section 43B(h) guide.

Using the rule without damaging the relationship

Most suppliers never file a case; they use the rule to get paid sooner. A sequence that works:

Print your Udyam number and the credit period on every invoice and PO acknowledgement.
Remind politely before the due date and on it. Most invoices get paid here.
After 30 days overdue, a firm reminder that mentions interest is accruing under the MSMED Act.
After 45 days, a final notice with a pay-by date and a note that you may approach the MSEFC.

Ready-to-use wording is in the template library and the reminder generator.

Frequently asked questions

Does the 45-day rule apply to medium enterprises?

No. Sections 15 to 17 of the MSMED Act protect suppliers that are micro or small enterprises. Medium enterprises are not covered, and neither is Section 43B(h).

Can a buyer and supplier agree to 60 or 90 days?

They can write it, but Section 15 caps the period at 45 days from acceptance. Interest under Section 16 runs from the 46th day regardless of the agreement.

Do traders get the benefit?

Retail and wholesale traders can register on Udyam, but that registration is for priority-sector lending. Whether they can claim delayed-payment protection is a question to check with your CA for your specific case.

Do I need to be registered before the sale?

Yes. The Supreme Court held in Silpi Industries v. Kerala SRTC (2021) that a supplier must be registered when it enters into the contract to claim the Act’s benefits for that supply.