MSME Late Payment Calculator
Calculate compound interest owed for delayed invoice payments under MSMED Act, 2006 (Section 16) and generate a formal demand notice.
Invoice Details
Default: 3× RBI Bank Rate (6.75% × 3 = 20.25%) as per MSMED Act
Results
Enter invoice details and click Calculate to see results here.
Generate Demand Notice
Frequently Asked Questions
What is the interest rate for MSME delayed payments?
Under Section 16 of the MSMED Act, interest is calculated at 3 times the bank rate notified by the RBI, compounded with monthly rests. This is significantly higher than standard bank lending rates to discourage delayed payments.
Who qualifies for interest on delayed payments?
Any enterprise registered as a Micro or Small Enterprise (with Udyam Registration) at the time of the transaction is eligible to claim interest on delayed payments from buyers.
Can a buyer refuse to pay the interest?
No. Section 24 of the MSMED Act states that the provisions of Sections 15-23 override all other laws and agreements. Even if your contract says "no interest on delays," the statutory interest is still payable by law.
How do I file a case for recovery?
If the buyer refuses to pay, you can file a case with the Micro and Small Enterprise Facilitation Council (MSEFC) in your state. This can often be done online through the MSME Samadhaan portal.
Deep Dive: MSMED Act & Delayed Payments
1. Section 15: The 45-Day Deadline
The MSMED Act mandates that a buyer must pay the supplier for goods or services within the period agreed upon in writing. Crucially, this period cannot exceed 45 days from the day of acceptance. If no agreement exists, payment is due within 15 days (the "appointed day").
Statutory Overrule: Even if your contract says "90-day payment terms," the law overrides it. Any agreement for more than 45 days is legally void under Section 15.
2. Section 16: 3× Bank Rate Interest
If the buyer fails to pay within the 45-day window, Section 16 kicks in. The buyer is liable to pay compound interest with monthly rests at three times the bank rate notified by the RBI.
- Mandatory: This interest is a statutory right; it cannot be waived by any private agreement.
- Compounding: Unlike standard interest, this compounds monthly, making it a heavy penalty for defaulters.
3. Section 43B(h): The 2026 Game Changer
Introduced to ensure MSME liquidity, Section 43B(h) of the Income Tax Act DISALLOWS tax deductions for any sum payable to an MSE if it is not paid within the time limit (45 days). This means:
For the Buyer
Higher taxable income and higher tax outgo if MSME dues are pending at the end of the financial year.
For the MSME
Powerful leverage. Reminding buyers of this tax hit usually results in immediate payment release.
4. Recovery: Section 18 & MSEFC
If a buyer refuses to pay, you don't need to go to a regular civil court. You can make a reference to the Micro and Small Enterprise Facilitation Council (MSEFC). The Council acts as an arbitrator and is mandated to resolve the dispute within 90 days.
MSME Payment Recovery Checklist
Check Registration
Ensure you have a valid Udyam Registration. This is the "passport" that grants you protection under the MSMED Act.
Invoice Disclosure
Add a note to all your invoices mentioning your Udyam number and your right to interest under the MSMED Act.
Send Demand Notice
If payment is delayed beyond 45 days, use our tool above to calculate interest and send a formal Demand Notice mentioning Section 16.
File on Samadhaan
If notice fails, file a case on the MSME Samadhaan Portal. It's a free online process provided by the Ministry of MSME.
Audit Support
Remind your client's auditors about their MSME dues. Statutory auditors are required to report unpaid MSME dues in company accounts.
Section 43B(h)
Mention the tax disallowance under Section 43B(h) in your follow-up emails to the finance team.