The MSME 45 day payment rule explained for suppliers and buyers

What is the MSME 45 day payment rule?

The MSME 45 day payment rule says a business that buys from a micro or small enterprise must pay within 15 days, or within the period agreed in writing if that period is 45 days or less. If it pays later, it cannot deduct the expense from its income until the year it actually pays.

The rule has two halves that sit in two different laws. The payment timeline and the interest come from the MSMED Act, 2006. The tax consequence comes from the Income-tax Act. The summary below is the position as of October 2026.

Which suppliers does the rule cover?

The rule covers suppliers that are micro or small enterprises registered under Udyam. The Udyam registration certificate states the category, so it is the document to ask for.

• Micro and small enterprises registered under Udyam: covered.
• Medium enterprises: generally understood to be outside section 43B(h), though some sources read it differently. Confirm with your chartered accountant.
• Suppliers without a Udyam registration: the rule is built on registration, so ask the supplier and keep the answer on file.

Because the category can change when a supplier grows, many businesses ask for a fresh Udyam certificate at the start of each financial year and note the date they checked.

When is the payment due: 15 days or 45 days?

The payment is due within 15 days when there is no written agreement on credit terms, and within the agreed period when there is one, capped at 45 days. An agreement for 60 or 90 days does not extend the limit; the cap still applies.

1. 1

   No written agreement

   Pay within 15 days. A verbal understanding of 30 days does not count.

2. 2

   Written agreement of 45 days or less

   Pay within the agreed number of days, for example 30.

3. 3

   Written agreement longer than 45 days

   Pay within 45 days. The longer term is not recognised for this rule.

The exact day the clock starts depends on when the goods or services are accepted. Agree the start point with your accountant and apply it the same way to every supplier.

What does the buyer lose by paying late?

A buyer that pays a covered supplier late loses the deduction for that expense in the year it was booked, and gets it only in the year it pays. Close to 31 March this moves profit, and the tax on it, into the current year.

The buyer also owes the supplier interest under section 16 of the MSMED Act: three times the bank rate notified by the RBI, compounded monthly, from the due date to the date of payment.

How does the rule work in a real example?

Lakshmi Steel Furnitures, the fictional Coimbatore business on this site, buys from three Udyam-registered suppliers. Here are its bills that fall due in March 2027 and what happens to the deduction for the year ending 31 March 2027.

• Kovai Fasteners was paid inside 15 days. No effect.
• Sri Velan Packaging was paid 16 days late. The deduction stays in FY 2026-27 because payment happened before 31 March, but interest is owed for the 16 days.
• Coimbatore Powder Coats was due on 18 March and paid on 20 May. The ₹2,00,000 expense is deductible only in FY 2027-28, and interest is owed from 18 March to 20 May.

One bill of ₹2,36,000 paid two months late moved ₹2,00,000 of expense out of the year. Paying it by 31 March would have kept it in.

What should a supplier do to get paid on time?

A supplier gets the most from the rule by making its status and its terms impossible to miss. The buyer's accountant needs both to know the bill is covered.

• Print your Udyam registration number and category on every invoice
• Agree credit terms in writing, at 45 days or less, and quote them on the invoice
• Send each customer a statement of account at the start of every month
• Review receivables ageing every week against the due date of each invoice
• Call before 31 March about anything that will cross the due date at year end

The statement is the useful nudge in February and March. A buyer that sees your Udyam number next to an overdue balance knows what a late payment costs it.

What should a buyer do to keep the deduction?

A buyer keeps the deduction by knowing which suppliers are covered and paying their bills by the due date, and in any case before 31 March.

• Collect a Udyam certificate from every supplier and record micro, small or medium
• Put credit terms in writing with each covered supplier, at 45 days or less
• Check payables ageing every week and pay covered suppliers first
• In March, list every covered bill still unpaid and clear it before 31 March
• Give your accountant the list of covered suppliers and late payments for the tax audit

How does SimpleERP help you follow the MSME payment rule?

SimpleERP keeps every supplier bill and payment in one ledger, so what you owe and how old it is are always one screen away. Payables ageing groups bills by supplier and by due date into current, 1 to 30, 31 to 60, 61 to 90 and over 90 days, and each row expands to the bills behind it.

• One payment can be allocated to many bills, so a part payment reduces the right bill.
• A statement of account per party, with opening balance, running balance and an ageing footer, prints or saves as PDF.
• On the selling side, receivables ageing and the statement show which customers to chase, and the reminder text can be copied and sent.

Read more on the payments and receivables page, and see the accounts receivable guide for the full collections routine.