MSME 45 Days Payment Rule: Meaning, Interest, Penalty & Compliance Explained

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Introduction

Timely payments are the backbone of small and medium enterprises in India. To protect MSMEs from delayed payments and cash-flow stress, the Government of India introduced the MSME 45 Days Payment Rule under the Micro, Small and Medium Enterprises Development Act.

This rule legally mandates buyers to make payments to MSME suppliers within a defined time period. Failure to comply results in heavy interest liability and legal consequences.

In this article, we will explain the MSME 45 days payment rule in simple language, covering:

• Legal provisions
• Applicability
• Interest & penalty
• Accounting and tax impact
• Practical examples
• FAQs

What is the MSME 45 Days Payment Rule?

The MSME 45 Days Payment Rule states that:

Any buyer purchasing goods or services from a registered MSME must make payment within a maximum of 45 days from the date of acceptance or deemed acceptance.

This rule applies irrespective of the buyer’s size, whether:

• Individual
• Proprietorship
• Partnership
• LLP
• Private Limited Company
• Public Limited Company
• PSU or Government entity

Legal Basis of the Rule

The rule is governed by Section 15 of the MSMED Act, 2006.

Key Legal Provisions

• Maximum credit period: 45 days
• Interest on delay: Mandatory and non-negotiable
• Interest rate: 3 times RBI bank rate
• Interest is compound interest
• Interest is NOT allowed as an expense deduction under Income Tax

Who is Covered Under the MSME Payment Rule?

1. Supplier (Seller)

The supplier must:

• Be registered as MSME (Udyam Registration)
• Supply goods or services
• Raise invoice in their MSME-registered name

2. Buyer

The buyer can be:

• Any business entity
• Any turnover size
• Any industry

�� There is no exemption for large corporates or government buyers.

What is “Date of Acceptance”?

The 45-day period starts from:

A. Date of Acceptance

• The date when goods/services are accepted by the buyer
• If no objection is raised within 15 days, acceptance is automatic

B. Date of Deemed Acceptance

• If the buyer does not respond within 15 days of delivery

MSME Payment Timeline Explained

Even if the agreement says 60 or 90 days, law overrides the contract.

Interest on Delayed Payment – How Much?

Interest Rate

• 3 × RBI Bank Rate
• Compounded monthly

Example

If:

• Invoice Amount: ₹1,00,000
• Delay: 3 months
• RBI Rate: 6.75%

➡ Applicable Interest = 20.25% (Compounded)

This makes delayed MSME payments very expensive for buyers.

Important Income Tax Impact

For Buyer

• Interest paid to MSME is NOT allowed as an expense
• Cannot be claimed as deduction under Income Tax Act
• Increases tax liability

For Supplier (MSME)

• Interest received is taxable as income

Disclosure in Financial Statements

Companies must disclose:

• Outstanding MSME dues
• Principal amount
• Interest due and paid
• Interest accrued but unpaid

This disclosure is mandatory under:

• Companies Act
• Audit reports
• Financial statements

Impact on Accounting & Compliance

Businesses must:

• Track MSME vendors separately
• Monitor invoice ageing
• Ensure payment within 45 days
• Maintain MSME declaration from suppliers
• Configure accounting software correctly

Failure may lead to:

• Audit qualifications
• Legal notices
• Cash-flow disruption
• Reputation damage

MSME 45 Days Rule & Practical Business Challenges

Common Issues

• Vendors not sharing MSME status
• Manual tracking errors
• Missed payment deadlines
• Interest miscalculations
• Audit remarks

Solution

• Maintain MSME vendor master
• Automate ageing reports
• Use accounting software with MSME compliance features

How Accounting Software Helps in MSME Compliance

Modern accounting solutions can:

• Identify MSME suppliers
• Track invoice due dates
• Generate ageing analysis
• Alert before 45-day deadline
• Calculate interest automatically
• Ensure audit-ready compliance

How Binarysoft Technologies Can Help

Powered by Binarysoft Technologies – Authorized Tally Partner

Binarysoft Technologies assists businesses in:

• MSME compliance setup
• Vendor classification
• Payment ageing tracking
• Interest calculation
• Audit-ready reporting
• Accounting & GST support
• Tally configuration and customization

Contact Details

�� Location:
1626/33, 1st Floor, Naiwalan, Karol Bagh, New Delhi – 110005, INDIA

�� Contact Us:
+91 7428779101, 9205471661, 8368262875

�� Email:
tally@binarysoft.com

�� Working Hours:
10:00 AM – 6:00 PM (Mon–Fri)

Conclusion

The MSME 45 Days Payment Rule is a powerful legal safeguard for MSMEs and a strict compliance requirement for buyers. Ignoring it can result in high interest cost, audit issues, and legal consequences.

With proper systems, awareness, and expert support, businesses can stay compliant and avoid unnecessary penalties.

For end-to-end MSME compliance, accounting setup, and professional support, connect with Binarysoft Technologies – Authorized Tally Partner today.