A purchase from a micro or small business can create more than a payable in your accounts. It also starts a statutory payment clock. Miss the deadline and the buyer may owe substantial interest, face a deferred income-tax deduction, and need to report overdue dues. For the supplier, the rule offers a route to recover delayed payments.
This guide explains the MSME 45-day payment rule in 2026, including the shorter deadline where no written credit terms exist. It also separates the payment rule under the MSMED Act from income-tax treatment and the company filing requirement.
45 days is a ceiling, not the standard credit period. A shorter written term must be honoured. Without a written agreement on payment, the statutory period is 15 days from acceptance or deemed acceptance.
At a glance: which deadline applies?
| Situation | Payment rule under section 15 |
|---|---|
| Written agreed credit period | Pay by the agreed date; it cannot exceed 45 days from acceptance or deemed acceptance. |
| No written agreement on payment | Pay before the “appointed day”, the day immediately after the 15-day period expires. |
| Written term longer than 45 days | A 60-day or 90-day term cannot extend the statutory maximum. |
These rules are in sections 2(b) and 15 of the MSMED Act, 2006 . They concern micro and small enterprise suppliers, not every business with “MSME” in its name.
When does the clock start?
The clock ordinarily starts on the day goods are actually delivered or services are rendered. If the buyer raises a written objection about acceptance within 15 days, the Act treats the date on which the supplier removes that objection as the day of acceptance. If the buyer raises no such written objection, deemed acceptance relates to the actual delivery or service date. An invoice date or an internal approval date should not automatically replace that statutory starting point. See the definition of acceptance and appointed day .
For example, if goods are accepted and the purchase order provides for 30 days of credit, the buyer follows that agreed date, not a 45-day date. If there is no written payment agreement, the buyer needs to work from the 15-day period. Keep the delivery note, service completion evidence and any timely written objection together so the due date can be explained later.
Which suppliers are covered?
The delayed-payment chapter defines a “supplier” by reference to a micro or small enterprise that has filed the prescribed memorandum, with certain statutory inclusions. In practice, ask for the supplier’s Udyam registration details, classification and business activity; retain a dated copy in your vendor records. A medium enterprise does not become eligible for this particular micro/small payment protection simply because it is an MSME.
There is a further distinction for retail and wholesale traders: Ministry of MSME guidance says their Udyam registration benefits are restricted to priority sector lending. Do not assume that a trader’s Udyam number alone establishes entitlement to the delayed-payment benefit; check the underlying activity and obtain advice on a disputed classification. See the Ministry’s MSME Champions guidance .
What happens if payment is late?
Under section 16 of the MSMED Act , a buyer that misses the section 15 deadline owes compound interest with monthly rests at three times the bank rate notified by the RBI. With an agreed date, interest runs from the following day; otherwise the Act refers to the appointed day. A contract clause promising a lower rate cannot override this statutory rule. The applicable RBI bank rate should be checked for the relevant period before calculating an amount.
Principal and interest are different for tax purposes. The MSMED Act’s section 23 bars an income-tax deduction for interest payable or paid under the Act. Paying the overdue principal can affect when an otherwise deductible purchase or expense is allowed, but it does not turn statutory late-payment interest into a deductible business expense.
If a buyer disputes or fails to clear a qualifying due, the supplier may pursue the Micro and Small Enterprises Facilitation Council through MSME Samadhaan . Keep the contract, invoice, proof of delivery or service, correspondence and Udyam details ready. A genuine acceptance dispute should be documented promptly and in writing rather than left as an unexplained overdue balance.
Income tax: section 43B(h) and section 37(2)(g)
The payment deadline does not itself determine the amount of tax. The separate income-tax rule determines when a deduction that is otherwise allowable can be claimed if payment to a micro or small enterprise goes beyond section 15’s time limit.
FY 2025-26: section 43B(h)
For the financial year ending 31 March 2026 (assessment year 2026-27), section 43B(h) of the Income-tax Act, 1961 Official ↗ applies. When the covered amount is paid beyond the MSMED Act deadline, a deduction otherwise claimed for that earlier year is tied to actual payment, subject to the normal rules on whether and when the expenditure is deductible. The usual extension for certain section 43B payments made by the income-tax return filing date does not apply to clause (h).
From 1 April 2026: section 37(2)(g)
For tax years beginning on or after 1 April 2026, the Income-tax Act, 2025, section 37(1)–(3) Official ↗ carries the actual-payment rule in section 37(2)(g). Section 37(3) expressly excludes clause (g) from its return-filing-date relaxation. The change in section number should therefore not be read as a waiver of delayed-payment treatment.
A bill that is still unpaid on 31 March is not automatically a disallowance merely because payment falls in April. Check its statutory due date and actual payment date. Likewise, paying a bill before the income-tax return due date does not cure an MSME payment made after its section 15 deadline for the earlier year.
A practical year-end example
Suppose an eligible small service supplier completes work in December 2025, the buyer has a written 30-day payment term, and the ₹2 lakh service expense is otherwise deductible in FY 2025-26. The agreed date passes in January, the invoice remains unpaid on 31 March 2026, and the buyer pays it in April 2026. The buyer must review a ₹2 lakh disallowance for FY 2025-26 under section 43B(h) and the deduction on actual payment in the subsequent period. Any statutory late interest is dealt with separately and is not deductible. Exact tax treatment depends on the expense and accounting facts.
Now change the facts: an accepted March supply has a valid written 30-day payment date in April and the buyer pays within that period. Crossing 31 March alone does not amount to late payment under section 15. That is why a report of “all MSME balances unpaid at year-end” is insufficient for tax review. Reconcile each balance to its acceptance date, agreed term and bank payment date.
MSME Form I: who files and when?
MSME Form I (often written MSME-1) is a filing for specified companies with the Registrar of Companies; it is separate from a buyer’s income-tax computation. The MCA’s July 2024 amendment Official ↗ says only specified companies having payments pending to micro or small enterprises for more than 45 days from acceptance or deemed acceptance furnish the information. A non-company buyer does not file this MCA form merely because it buys from an MSE, though the payment and tax rules may still matter.
| Reporting period | Deadline in the 2019 order |
|---|---|
| April to September | 31 October |
| October to March | 30 April |
The filing dates are set by the MCA’s 2019 order Official ↗. The revised form also contains fields for amounts paid after 45 days, as well as amounts still outstanding. Thus, a company that meets the filing condition should complete the form’s applicable details rather than report only the final unpaid balance. Check current MCA filing notices for any specific extension before submitting.
There is a separate annual accounts disclosure under section 22 of the MSMED Act for a buyer required to have its annual accounts audited under law. It calls for specified principal and interest information, including unpaid amounts and delayed payments. It is not the same filing as MSME Form I.
A working checklist for buyers
- Verify the vendor. Obtain Udyam details, classification and activity, and update the record if status changes. Flag special cases such as traders for review.
- Record acceptance. Store delivery or service evidence and any written objection raised within the statutory period.
- Save written payment terms. Capture the agreed due date in the purchase order or contract; cap it at 45 days and honour any shorter term.
- Track both clocks. Monitor the contractual or 15-day deadline for payment and the separate 45-day threshold relevant to MCA Form I.
- Reconcile at year-end. Match vendor balances to acceptance dates, settlement dates, late interest and income-tax treatment. Give your accountant an invoice-level report rather than a single total.
- Review reporting. If applicable, prepare audited-account disclosures and the company’s half-yearly MSME Form I details.
A working checklist for micro and small suppliers
Share your Udyam details with the buyer at onboarding, put the agreed payment date on a written purchase order or contract, and keep proof of delivery or completed work. Follow up as soon as a payment is due. If the amount remains unresolved, assemble the documents needed for an MSEFC reference through MSME Samadhaan. Udyam registration can be completed through the official Udyam portal ; check your actual activity and classification rather than relying on a generic “MSME” label.
The takeaway
For a qualifying micro or small supplier, 15 days applies without written payment terms; a written term can run no longer than 45 days. A late buyer can owe compounded statutory interest. The tax deduction timing rules continue under section 43B(h) for FY 2025-26 and section 37(2)(g) for tax years from 1 April 2026. Companies must assess MSME Form I using the MCA’s pending-payment trigger and the revised form, while audited buyers also consider section 22 disclosure.
For help checking a supplier’s category and registration details, see TaxQue’s Udyam registration service. For the primary rules, read the MSMED Act , the current Income-tax Act, 2025 text Official ↗ and the MCA’s revised MSME Form I order Official ↗.
