MSME Payment Rule – How to Implement MSME Compliance in Tally (Full Guide + FAQs)

Published on: 27-11-2025 Call CA Tally HelpDesk +91 9205471661, 8368262875

The Government of India has strengthened MSME protection through strict payment rules, ensuring that Micro & Small Enterprises receive timely payments from buyers. Under the MSME Development Act (MSMED Act), 2006, buyers must make payments within:

• 45 days (maximum) if there is a written agreement
• 15 days if no written agreement

If the buyer fails to pay within the allowed period, the buyer must pay compound interest at three times the RBI bank rate.

This rule applies to all businesses dealing with MSMEs—manufacturers, traders, wholesalers, contractors, service providers, and retailers.

Tally users must therefore track:

• Which suppliers are registered as MSME
• The due date for their invoices
• Pending payments that breach the MSME limit
• Interest liability (if any)
• Compliance-based reporting

This detailed guide explains how MSME rules work and how to implement them inside Tally Prime.

 Who Is Covered Under MSME?

Only suppliers who have Udyam Registration Certificate (URC) fall under MSME law.

Micro, Small, and Medium Enterprises are classified based on:

For the MSME payment rule, only Micro & Small enterprises get the mandatory 45-day protection.

⭐ MSME Payment Rule – Key Points Every Business Must Follow

1. Payment must be made within 15 days (no written agreement)
2. Payment must be made within 45 days (with written agreement)
3. Delay beyond allowed period attracts compound interest @ 3x RBI rate
4. Interest is automatically treated as a penal expense (not deductible under income tax)
5. Buyers must disclose unpaid MSME dues in Balance Sheet Notes
6. Businesses should maintain records of all MSME suppliers

�� How to Implement MSME Payment Rule in Tally – Full Step-by-Step Guide

This guide helps you configure MSME suppliers, define due dates, track outstanding beyond MSME limit, and calculate interest if needed.

✅ STEP 1: Enable MSME Settings in Tally

Open:

Gateway of Tally → F11 (Features) → Accounting Features

Enable:

• Maintain Bill-wise Details – YES
• Enable Interest Calculation – YES
• Set Due Dates – YES
• Maintain Supplier Type (if using Tally Prime 4.0+) – YES
• Set ageing analysis for outstanding – YES

This activates MSME compliance features inside Tally.

✅ STEP 2: Create Supplier Ledger and Mark as MSME

Go to:

Accounts Info → Ledgers → Create

Fill the details:

• Name: ABC Silver Works
• Group: Sundry Creditors
• Maintain Balances Bill-wise: Yes
• Type of Supplier: MSME (Micro / Small)
• Udyam Registration No.: Enter URC number
• MSME Due Date Limit: 45 Days
• Interest Calculation: Enable (optional)

This ensures the supplier is recognized as MSME in Tally.

✅ STEP 3: Record Purchase Entry with Due Date Tracking

During purchase entry:

• Select MSME supplier
• Enter Bill No., Date, Amount
• Tally will auto-calculate due date = Bill Date + 45 Days

If there is no agreement, set the due date to 15 days manually.

This helps Tally track MSME compliance automatically.

✅ STEP 4: Track Outstanding MSME Dues in Tally

To check pending dues that have crossed 45 days:

Go to:

Display More Reports → Payables → Ageing Analysis → MSME Outstanding

You will see:

Tally highlights bills that pass the 45-day rule.

✅ STEP 5: Auto-Calculate Interest for Delayed MSME Payments

If you want to calculate statutory interest:

Open Ledger → Interest Calculation

Set:

• Calculate Interest: YES
• Interest Rate: 3× RBI Bank Rate
• Interest Mode: Monthly/Yearly
• Method: Compound Interest

Tally now calculates interest automatically on overdue invoices.

✅ STEP 6: Pass Payment Vouchers with Compliance Check

When making a payment:

• Tally will show yellow alert if the bill has crossed the MSME limit
• You can select the bill and pay directly
• Interest, if applicable, is auto-added

This ensures you follow MSME rules at the time of payment.

✅ STEP 7: MSME Compliance Reporting for Audit

Tally provides MSME reports for:

• Suppliers marked as MSME
• Overdue bills
• Interest liability
• Pending dues
• Unpaid bills over 45 days

Go to:

Display More Reports → Statutory Reports → MSME Summary

This is extremely useful during:

• Audit
• Compliance review
• Preparation of financial statements

⭐ Practical Example

Invoice Date: 01 Nov 2025
Supplier Type: MSME (Micro)
Amount: ₹1,20,000
MSME Payment Limit: 45 days
Due Date: 16 Dec 2025
Paid On: 30 Dec 2025
RBI Bank Rate (example): 6%
Interest Rate Applied: 6% × 3 = 18% annually

Interest is calculated in Tally automatically for 14 days delay.

 Why MSME Implementation in Tally Is Important

• Avoid penalties and legal issues
• Comply with mandatory MSME provisions
• Maintain healthy vendor relationships
• Track dues with high accuracy
• Improve financial discipline
• Provide clean records for auditors

Businesses failing to comply may face penalties, disallowed expenses, and legal notices.

Frequently Asked Questions (FAQs)

1. Does MSME rule apply to Medium enterprises?

No. It applies only to Micro & Small enterprises with Udyam Registration.

2. Is interest compulsory for delayed payments?

Yes. It is legally mandatory and cannot be waived by agreement.

3. What if a supplier claims MSME status but does not give URC?

You should ask for Udyam Registration Certificate. Without URC, MSME rule does not apply.

4. How to check MSME status inside Tally?

Open supplier ledger → supplier type = MSME → URC number stored.

5. Can Tally auto-block payments beyond 45 days?

No, but Tally shows alerts & warnings when overdue.

6. Can Tally calculate MSME interest automatically?

Yes, when interest calculation is configured in the ledger.

7. Does MSME rule apply to GST credit notes or debit notes?

It applies only to payment for goods/services, not to tax adjustments.

8. Does MSME interest appear in Profit & Loss?

Yes, but it is treated as a penal financial expense.

9. Can we maintain multiple MSME suppliers with different limits?

Yes. Set 45 days or 15 days individually for each ledger.

10. Is non-compliance punishable?

Yes. Businesses may face:

• Penalties
• Interest liability
• Disallowance of expenses
• Legal action by MSME suppliers

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