MSME Payment Rule Explained (2025): Due Dates, Penalties & How to Comply Using TallyPrime

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Introduction

Timely payment to MSMEs has become a major compliance focus for businesses in India. To protect Micro and Small Enterprises from delayed payments, the government has enforced strict MSME Payment Rules under the MSME Development Act, 2006, along with disclosure requirements under the Income-tax Act and Companies Act.

In this guide, we explain the MSME payment rule in simple terms, its impact on buyers, penalties for non-compliance, and how accounting software like TallyPrime helps businesses stay compliant effortlessly.

What Is the MSME Payment Rule?

The MSME Payment Rule mandates that buyers must pay MSME suppliers within a specified time limit:

• 15 days – If no written agreement exists
• 45 days – If a written agreement exists

Any delay beyond this attracts interest and compliance consequences.

Who Is Covered Under MSME Payment Rules?

The rule applies when:

• The supplier is registered as a Micro or Small Enterprise (Udyam registered)
• The buyer can be any business, company, LLP, partnership, or individual

⚠️ Medium enterprises are not covered under the payment protection rule.

Interest on Delayed MSME Payments

If payment is delayed:

• Interest is charged at 3× RBI Bank Rate
• Interest is compound interest, calculated monthly
• Interest paid cannot be claimed as an income-tax deduction

This makes delayed payments extremely costly.

MSME Payment Rule & Income Tax (Section 43B(h))

From FY 2023–24 onwards:

• Expenses payable to MSMEs are allowed as deduction only if paid within due time
• Unpaid MSME dues beyond the due date are disallowed in the same financial year
• Deduction allowed only in the year of actual payment

This has a direct impact on profit, tax liability, and audits.

MSME Disclosure Requirements (Companies Act)

Companies must disclose:

• Outstanding MSME dues
• Amount of interest payable
• Payments delayed beyond 45 days

These disclosures are mandatory in financial statements.

Common MSME Payment Compliance Challenges

• Identifying MSME vendors
• Tracking due dates invoice-wise
• Calculating interest manually
• Ensuring tax compliance
• Audit-ready reporting

Manual tracking using Excel increases the risk of errors.

How TallyPrime Helps with MSME Payment Compliance

TallyPrime simplifies MSME compliance through built-in features:

Key Capabilities

• MSME vendor identification
• Credit period tracking
• Outstanding bill ageing reports
• Interest calculation visibility
• Accurate expense recognition
• Audit-ready compliance data

Businesses can monitor MSME dues in real time and avoid penalties.

Best Practices for MSME Payment Compliance

• Identify MSME vendors at onboarding
• Set credit limits & due dates clearly
• Reconcile payables monthly
• Use accounting software like TallyPrime
• Avoid year-end tax disallowances

Who Should Be Careful About MSME Payment Rules?

• Trading & manufacturing businesses
• Companies with multiple vendors
• CA & audit firms
• MSMEs buying from other MSMEs
• Growing startups & corporates

Conclusion

The MSME Payment Rule is no longer just a vendor issue—it directly affects tax computation, audits, and financial statements. Delayed payments can result in higher tax outflows and penalties.

Using a smart accounting solution like TallyPrime helps businesses track MSME dues, ensure timely payments, and stay fully compliant without manual effort.

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