MSME Delayed Payment Interest Calculator
MSME Delayed Payment Interest Calculator
The interest a buyer owes a micro or small supplier for paying late under India’s MSMED Act, 2006: compound interest with monthly rests at three times the RBI Bank Rate, from the day after the payment deadline.
Interest owed for late payment
An invoice of $5,00,000, 45 days’ credit agreed, paid 120 days after acceptance, Bank Rate 5.5%
Interest under section 16
- A
- the amount due
- i
- the monthly rate: three times the RBI Bank Rate, divided by 12
- m
- complete 30-day months of delay, each ending in a monthly rest
- d
- the days left over in the last, part month
- deadline
- the written credit period (at most 45 days) or, with none, 15 days from acceptance
Worked example
An invoice of $5,00,000, 45 days' credit agreed, paid 120 days after acceptance, Bank Rate 5.5%
Deadline = day 45, so the payment is 120 − 45 = 75 days late: two 30-day rests and 15 days
Rate = 3 × 5.5% = 16.5% a year; per month 16.5 ÷ 12 = 1.375%
After two rests: 5,00,000 × 1.013752 = $5,13,844.53
Last 15 days: × (1 + 0.01375 × 15 ÷ 30) = $5,17,377.21
Interest = $17,377; the buyer owes $5,17,377 in all
Interest on 5,00,000 paid late, Bank Rate 5.5% (16.5% a year)
| Days late | Interest | As % of the invoice |
|---|---|---|
| 30 days | $6,875 | 1.38% |
| 60 days | $13,845 | 2.77% |
| 90 days | $20,910 | 4.18% |
| 180 days | $42,694 | 8.54% |
| 365 days | $90,384 | 18.08% |
What the MSMED Act says about late payment
Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 requires a buyer to pay a micro or small supplier by the date agreed in writing, and that date can never be more than 45 days after the buyer accepts the goods or services (or is deemed to accept them, if no objection is raised within 15 days of delivery). Where nothing is agreed in writing, the deadline is 15 days. Section 16 then makes a late buyer liable for “compound interest with monthly rests” at three times the bank rate notified by the Reserve Bank, from the day after the deadline — whatever the contract says. The Act protects suppliers registered as micro or small enterprises (today through Udyam registration); medium enterprises are not covered.
At a Bank Rate of 5.5% the rate is 16.5% a year, or 1.375% a month. In the example, a $5,00,000 invoice paid 75 days late carries $17,377 of interest. The same 16.5% as simple interest would be about $16,952; the monthly compounding is what the law requires. Over a full year the effective rate is 17.81%. The Act does not say how to treat a part month or which calendar to use; the page rests every 30 days and charges simple interest for the days left over. A Facilitation Council or court works from the actual dates, so treat the figure as a close estimate. If the Bank Rate changed during the delay, the page still applies one rate throughout.
A supplier can claim through the Micro and Small Enterprises Facilitation Council of its state under section 18, which first tries conciliation and then arbitration; the Ministry of MSME’s Samadhaan portal lets suppliers file these cases online. For the buyer there is a tax cost as well. Section 23 of the Act bars the interest from being deducted as an expense, and section 43B(h), introduced into the Income-tax Act, 1961 in 2023, allows the unpaid invoice itself as a deduction only in the year it is actually paid if it is paid after the section 15 deadline. The Income-tax Act, 2025 has replaced the 1961 Act; confirm how it now treats these payments with a tax adviser. For the supplier the interest received is taxable income.
For the working-capital side of slow payment, see the cash conversion cycle calculator, and for the tax on the invoice itself the GST calculator. This is arithmetic on the figures you enter, not financial advice. It is not legal advice either.
Frequently asked questions
What interest rate applies to late payments to MSMEs?
Three times the bank rate notified by the RBI, compounded monthly (MSMED Act, section 16). With the Bank Rate at 5.5%, that is 16.5% a year, 1.375% a month.
When does interest start?
From the day after the deadline: the agreed date, which can be at most 45 days after acceptance, or 15 days after acceptance if nothing was agreed in writing.
Can a contract set a lower rate or a longer credit period?
No. Section 16 applies notwithstanding any agreement, and section 15 caps a written credit period at 45 days.
How much interest is due on 5 lakh paid 75 days late?
About $17,377 at a Bank Rate of 5.5%, with 30-day monthly rests.
Where can a supplier complain about delayed payment?
To the Micro and Small Enterprises Facilitation Council of the state (section 18), including online through the Ministry of MSME’s Samadhaan portal.
Related calculators
References
- Micro, Small and Medium Enterprises Development Act, 2006 (Act 27 of 2006), India Code: section 2(b) (“appointed day”: the day after fifteen days from the day of acceptance or deemed acceptance of the goods or services); section 15 (payment on or before the agreed date, and “in no case” an agreed period of more than forty-five days from acceptance); section 16 (the buyer is “liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank”, notwithstanding any agreement); section 17 (amount with interest recoverable); section 18 (reference to the Micro and Small Enterprises Facilitation Council); section 23 (the interest is not allowed as a deduction in computing income).
- Reserve Bank of India. Current rates, rbi.org.in home page, consulted 22 September 2026: Policy Repo Rate 5.25%, Standing Deposit Facility 5.00%, Marginal Standing Facility 5.50%, Bank Rate 5.50%; unchanged at the Monetary Policy Committee’s review of 5 August 2026. The Bank Rate is aligned with the MSF rate and changes when the repo rate does.
- Ministry of Micro, Small and Medium Enterprises, Government of India. MSME Samadhaan — Delayed Payment Monitoring System, samadhaan.msme.gov.in: online filing of delayed-payment applications to the Micro and Small Enterprises Facilitation Councils.
- Income-tax Act, 1961, section 43B(h), inserted by the Finance Act, 2023: a sum payable to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act is deductible only in the year it is actually paid. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026; commentaries report the rule carried into its section 37 — check the current text with a tax adviser.