MSME Delayed Payment Interest Calculator

Buyers must pay micro and small suppliers within 45 days (15 days if nothing is agreed in writing). Past that, interest runs at three times the RBI bank rate, compounded monthly, and a late-paid bill is deductible only when you actually pay it. Work out the interest and draft a demand notice.

Invoice amount owed, incl. GST (₹)Date goods were delivered or service accepted

Date you paid (leave empty if unpaid)

Calculate as on

Used while the bill is unpaid.RBI bank rate (%)5.75% since 7 October 2026. Change it if the rate was different during the delay.Credit period agreed in writing (days)Capped at 45 days.

There is a written agreement on the credit periodWithout one, payment is due in 15 days.The supplier is a micro or small enterprise on UdyamMedium and large suppliers are not covered.

What is owed

Payment was due by03/08/2026

Days late75

Interest rate (3 x bank rate)17.25% a year, 1.44% a month

Interest, compounded monthly₹3,585.92

Total to be paid₹1,03,585.92

Under section 43B(h) of the Income-tax Act, a bill paid late is a tax deduction only in the year you actually pay it, not the year of the purchase. On ₹1,00,000 that moves the deduction to another year.

The interest is not tax-deductible for the buyer (section 23 of the MSMED Act).

Still unpaid: if the due date falls in a year that ends before you pay, the expense is disallowed in that year under 43B(h) and allowed only when you pay.

Draft demand notice

For a supplier chasing an overdue bill. Fill the names, copy the text, add your Udyam number and send it by email or registered post. A lawyer should look at it before you rely on it.

Buyer nameYour business nameInvoice number

Date: 17/10/2026

To: [Buyer's name and address]
From: [Your business name and address]

Subject: Notice for payment of overdue amount with interest under the Micro, Small and Medium Enterprises Development Act, 2006

Dear Sir or Madam,

We are a registered micro/small enterprise (Udyam registration no.: [your Udyam number]). We supplied goods or services to you against invoice [invoice number] for ₹1,00,000.00, accepted on 19/06/2026.

Under section 15 of the MSMED Act, payment was due within 45 days, that is by 03/08/2026. As on 17/10/2026, the amount remains unpaid, 75 days after the due date.

Under section 16, you are liable to pay compound interest with monthly rests at three times the Reserve Bank of India bank rate (17.25% a year at a bank rate of 5.75%). Interest up to 17/10/2026 comes to ₹3,585.92.

Amount due: principal ₹1,00,000.00 plus interest ₹3,585.92 = ₹1,03,585.92.

We request payment within 15 days of this notice. If it is not received, we will refer the dispute to the Micro and Small Enterprises Facilitation Council under section 18 of the Act and pursue recovery.

Yours faithfully,
[Your name, designation and signature]

Based on sections 15, 16 and 18 of the MSMED Act, 2006 and section 43B(h) of the Income-tax Act. Rules checked on 17 October 2026. Bank rate as announced by the RBI on 7 October 2026. Interest is worked out in whole months compounded, plus the part month pro rata. This is a calculator, not legal or tax advice: confirm with your CA or lawyer.

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Frequently asked questions

What is the time limit to pay an MSME supplier?

The agreed credit period, but never more than 45 days from the day of acceptance of the goods or services. If there is no written agreement, the limit is 15 days (section 15 of the MSMED Act).

How is the interest calculated?

Section 16 charges compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. At a bank rate of 5.75% that is 17.25% a year, or 1.4375% a month.

What is Section 43B(h) of the Income-tax Act?

If you pay a micro or small supplier after the time limit, the expense is allowed as a tax deduction only in the year you actually pay it. If a bill is still unpaid after its section 15 time limit (45 days, or 15 days without a written agreement) when the buyer's year ends, the expense is disallowed for that year and allowed only in the year of payment.

Is the interest I pay tax-deductible?

No. Section 23 of the MSMED Act says interest payable to an MSME supplier is not deductible in computing the buyer's income.

Which suppliers are covered?

Only micro and small enterprises registered on Udyam. Medium and large suppliers are not covered by section 16 or 43B(h). Ask your supplier for their Udyam registration.

What can a supplier do about an overdue bill?

Send a written notice, then refer the dispute to the Micro and Small Enterprises Facilitation Council (through the Samadhaan portal) under section 18. The draft notice on this page is a starting point.

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