MSME Delayed-Payment Interest Computation
We compute the statutory interest owed on delayed payments to micro and small suppliers under Section 16 of the MSMED Act, 2006 — three times the bank rate notified by the RBI, compounded with monthly rests from the appointed day — and prepare a defensible, invoice-wise working you can rely on for recovery, Samadhaan filing or Section 43B(h) income-tax positions.
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What Is MSME Interest Computation?
A plain-language explanation before the mechanics of the computation.
It is a precise calculation of the interest a buyer legally owes when it pays a registered micro or small supplier late. The MSMED Act does not leave the rate to negotiation — it fixes a punitive compound rate, and we translate that into a clean, invoice-wise figure.
Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 provides that where a buyer fails to make payment to the supplier by the appointed day, it shall be liable to pay compound interest, with monthly rests, to the supplier on that amount from the appointed day, at three times the bank rate notified by the Reserve Bank of India — notwithstanding anything in any agreement or any other law.
The right flows from the MSMED Act, 2006, read with the definition of the “appointed day” and the 45-day / agreed-period payment window in Sections 2(b) and 15. Disputes are adjudicated by the Micro & Small Enterprise Facilitation Council (MSEFC) under Section 18.
The interest liability accrues automatically by operation of law and continues to compound with monthly rests until the outstanding principal is actually paid. It cannot be waived by any contractual clause.
Quick Facts
Is This Service Right for You?
Ideal for
- Micro and small suppliers chasing overdue invoices
- Suppliers preparing an MSME Samadhaan application
- Enterprises quantifying interest before an MSEFC hearing
- Buyers assessing their Section 43B(h) income-tax exposure
- Auditors validating MSME interest disclosures in accounts
- CFOs reconciling year-end MSME payable ageing
You may need this if
- A buyer has paid you (or is holding payment) beyond the appointed day
- You need a defensible interest figure to attach to a recovery notice
- You are filing on the MSME Samadhaan portal and must state the interest claimed
- You are a buyer and need to quantify disallowance under Section 43B(h)
- Your statutory audit requires the MSMED interest note in the financials
- A payment dispute is heading to the Facilitation Council
Not sure if you need this?
Talk to an Expert →Why the Section 16 Computation Matters
The interest under Section 16 is not ordinary contractual interest — it is a statutory, punitive, compounding liability that most spreadsheets get wrong. Getting the working right protects recovery on one side and tax positions on the other.
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01
Punitive Compound Rate
Section 16 fixes interest at three times the RBI notified bank rate, compounded with monthly rests. This is far higher than ordinary commercial interest and is designed to deter delayed payment to small suppliers.
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02
Correct Appointed Day
The clock starts from the appointed day — the day immediately after the agreed credit period, or the 45th day where there is no written agreement. Fixing this date correctly is the single most common source of error in interest workings.
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03
Cannot Be Contracted Out
The liability applies notwithstanding any agreement to the contrary. A clause purporting to waive or reduce this interest is unenforceable, so the statutory figure stands even if the purchase order says otherwise.
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04
Section 43B(h) Buyer Interface
For buyers, non-payment within the MSMED time-limit disallows the expense under Section 43B(h) of the Income-tax Act until it is actually paid, directly affecting taxable income and advance-tax planning.
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05
Recovery & Samadhaan Ready
A clean, invoice-wise interest schedule strengthens a recovery notice and is the figure you quote when filing on the MSME Samadhaan portal or before the MSEFC.
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06
Audit & Disclosure
The Companies Act and accounting standards require disclosure of amounts due and interest payable to MSMEs. A correct computation supports the audit note and avoids qualified observations.
Simple, Transparent Pricing
Custom quote for your case
Fees depend on your business type and scope. Get a clear, itemised quote upfront — no hidden professional charges, government fee billed at actuals.
Who Can Apply?
Eligibility checklist
- The supplier is a micro or small enterprise with valid Udyam registration on the transaction date
- The supply was of goods or rendering of services with a due-for-payment date
- Payment was not made by the appointed day (agreed date, or the 45th day where no agreement)
- Invoice-wise data is available — invoice date, amount, acceptance date and payment date(s)
- The RBI bank rate applicable across the delay period can be mapped to each invoice
Everything You Need. One Professional Team.
Scope & Fact-Gathering
Understand whether you are the supplier or the buyer and collect the invoice-wise data set.
MSME Status Check
Confirm the supplier held valid micro or small Udyam registration on the relevant transaction dates.
Appointed-Day Mapping
Fix the appointed day for each invoice from the agreed credit period, or the 45-day default under Section 15.
Bank-Rate Sourcing
Map the RBI notified bank rate applicable through each delay period and apply the three-times multiplier.
Compound Interest Working
Compute interest with monthly rests from the appointed day to the actual (or notional) payment date, invoice by invoice.
Schedule & Summary
Deliver a clean interest schedule with a consolidated summary suitable for a notice, Samadhaan filing or audit note.
Section 43B(h) View
For buyers, quantify the amount disallowable until actually paid and flag the tax impact.
Next-Step Guidance
Advise on recovery, Samadhaan filing or MSEFC referral based on the numbers.
What You’ll Receive
What We Need to Compute the Interest
Accurate interest depends on accurate dates. The more precise your invoice, acceptance and payment data, the more defensible the working. Keep clear PDF or Excel records ready.
Transaction & Invoice Records
- Invoice-wise ledger — invoice number, date, value and description
- Date of acceptance / deemed acceptance of goods or services
- Purchase order or supply agreement showing the agreed credit period
- Delivery challans / proof of supply or service completion
Payment & Status Proof
- Bank statements or payment advices showing actual payment dates
- Part-payment details, if any, with dates and amounts
- Udyam Registration Certificate of the supplier (with classification date)
- Any correspondence, reminders or dispute notes on the outstanding amount
The appointed day drives everything
Where there is a written agreement, the credit period cannot exceed 45 days from acceptance; without an agreement, the appointed day is the 45th day from acceptance. Interest runs from the day after this date.
Acceptance date matters
If the buyer raised an objection in writing within 15 days of receipt, the “day of acceptance” shifts to when the objection was removed. This changes the appointed day and the interest.
Udyam status on the transaction date
The supplier must have been a micro or small enterprise (medium enterprises are outside Section 16) when the supply was made. We verify the Udyam classification date.
Compound, not simple
The interest is compounded with monthly rests — accrued interest is added to the principal each month. A simple-interest calculation understates the true statutory liability.
Don’t have all the documents?
We’ll identify what your case needs →How the Interest Computation Works
A structured, invoice-wise method that follows the letter of Section 16.
Share the invoice-wise data
Provide the ledger of unpaid or late-paid invoices with dates, values, acceptance dates and any payment dates.
Confirm MSME status & appointed day
We verify the supplier's Udyam classification and fix the appointed day for each invoice from the agreed period or the 45-day default.
Map the RBI bank rate
We identify the bank rate notified by the RBI for each part of the delay period and apply the statutory three-times multiplier.
Compute with monthly rests
Interest is calculated invoice by invoice from the appointed day to the payment (or valuation) date, compounding with monthly rests.
Review & reconcile
We reconcile the schedule against your ledger and the RBI rate history, and resolve any date or acceptance ambiguities.
Deliver the schedule & advice
You receive the interest schedule, a consolidated summary and guidance on recovery, Samadhaan or the Section 43B(h) position.
Statutory Timelines You Should Know
| Stage | Expected Time |
|---|---|
| Payment window (with written agreement) | As agreed, but not exceeding 45 days from acceptance |
| Payment window (no written agreement) | 15 days from acceptance / deemed acceptance |
| Appointed day (default) | 45th day from the day of acceptance |
| Interest accrual under Section 16 | From the appointed day until actual payment (monthly rests) |
| MSEFC decision on a referred dispute | Within 90 days of reference (Section 18) |
These are statutory timelines under the MSMED Act, 2006. The appointed day is the day immediately following the agreed date, or the 45th day from acceptance where there is no written agreement. Interest under Section 16 continues to compound with monthly rests until the principal is actually paid.
Doing It Yourself vs TaxClue
Doing It Yourself
- Wrongly apply simple interest instead of compound with monthly rests
- Miss the correct appointed day for each invoice
- Use a single flat rate instead of the RBI bank rate that changed over time
- Overlook the 15-day objection rule that shifts the acceptance date
- Include medium enterprises, which are outside Section 16
- Fail to link the working to a Samadhaan claim or audit note
- Ignore the Section 43B(h) tax impact on the buyer side
With TaxClue
- Correct compound interest with monthly rests applied
- Appointed day fixed accurately for every invoice
- RBI bank rate mapped across the full delay period
- Acceptance and objection dates properly considered
- Only eligible micro and small supplies included
- A schedule ready for recovery, Samadhaan or audit
- Section 43B(h) exposure quantified for buyers
Skip the guesswork.
Let an expert handle it →Common Mistakes That Delay Your Application
TaxClue reviews your documents before filing to reduce avoidable errors.
Penalties & Consequences
What is at stake if you do not comply
- The buyer's delayed payment attracts compound interest at three times the RBI bank rate
- Using simple interest instead of compound with monthly rests under-states the claim
- The buyer's expense is disallowed under Section 43B(h) until a registered MSME supplier is paid
- Fixing the appointed day wrongly makes the whole interest working indefensible
Regulatory Updates 2025–26
- 2025: Under the MSMED Act 2006, buyers must pay micro and small suppliers within 45 days, with interest at three times the RBI bank rate on delay.
- 2025: Under Section 43B(h) of the Income-tax Act, the buyer's expense is disallowed until a registered MSME supplier is paid.
Why Businesses Choose TaxClue
MSMED Specialists
Section 16 computations and MSEFC matters handled by a dedicated team.
Statutory Accuracy
Compound interest, monthly rests and the correct appointed day, applied to the letter of the Act.
Tax-Aware
We connect the interest working to the Section 43B(h) position for buyers.
Audit-Ready Output
A clean schedule and disclosure note your auditor can rely on.
End-to-End
From computation to Samadhaan filing and MSEFC representation under one roof.
Confidential
Your ledgers and payment data handled securely by professionals.
Your Documents Deserve Professional Care
- Ledgers and payment data handled by professionals under confidentiality
- Access limited to the team working on your file
- Communication over secure digital channels
- Records retained only as long as needed for the engagement
Frequently Asked Questions
What is the interest rate on delayed payments to MSMEs?
Is the interest simple or compound?
From which date does the interest start running?
What is the appointed day under the MSMED Act?
Can the buyer and supplier agree to a lower interest rate or waive it?
Does this interest apply to medium enterprises?
What is Section 43B(h) of the Income-tax Act and how is it connected?
Which bank rate is used for the computation?
Do I need Udyam registration to claim this interest?
Can this interest computation support an MSME Samadhaan filing?
How is interest handled when part-payments were made?
What do you deliver at the end?
How is interest on delayed payments to MSMEs calculated?
What is the 45-day payment rule for MSMEs?
Can I claim this interest through MSME Samadhaan or the MSEFC?
What happens if the buyer does not pay the delayed-payment interest?
Do I need Udyam registration to claim delayed-payment interest?
Official Sources & Legal References
Every statutory figure on this page — the rate, the compounding, the appointed day and the tax interface — is drawn from primary law. Verify directly:
- MSMED Act, 2006 — full textSection 15 (payment period), Section 16 (interest for delayed payment) · India Code
- MSME Samadhaan PortalOfficial portal to file delayed-payment applications and view the statutory framework
- Reserve Bank of India — bank rateCurrent and historical bank rate notified by the RBI, used for the three-times multiplier
- Income-tax Act, 1961 — Section 43B(h)Deduction allowed only on actual payment where MSE dues are not paid within the MSMED time-limit
Related Guides
MSME Interest Computation Resources — All Free
Get a Defensible MSME Interest Working
Invoice-wise, statutorily-correct interest under Section 16 of the MSMED Act — compound with monthly rests, from the appointed day — ready for recovery, Samadhaan or your Section 43B(h) position. Free consultation, confidential.