AS | Ankit Sarawagi|Founder, CFOmatrix·July 2026·12 min read | Written from real filing experience |
- The clock is the law, not the contract. Payment is due in 45 days (15 with no written agreement); after that, interest runs whether the buyer agreed to it or not.
- Interest is punishing: 3x the RBI bank rate, compounded monthly, roughly 19.5% a year, and the buyer cannot claim it as a tax expense.
- Filing is free on the MSME Samadhaan portal and goes to your state’s MSEFC council, but you must hold a valid Udyam registration.
- Section 43B(h) is your hidden ally: a buyer who pays you late loses its income-tax deduction, so it often pays before 31 March just to protect its own taxes.
- Reality check: the process works but is slow (expect a month to the first hearing, several hearings, and an arbitration-fee stage). Often, the formal notice alone gets you paid.
| 45 days Maximum payment window (15 without a written agreement) | ~19.5% p.a. Compound interest: 3x the RBI bank rate, monthly rests | ₹0 Court fee to file on MSME Samadhaan |
Your Legal Right: The 45-Day Rule
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 gives registered micro and small suppliers a statutory payment deadline that no contract can water down. Under Section 15, the buyer must pay:
The day after this period ends is called the “appointed day.” From that moment the buyer is in legal default, and, crucially, you do not have to send a reminder or get their consent for the consequences to begin. The most important consequence is interest.
The Interest Clock: 3x the Bank Rate, Compounding
Section 16 is the part that makes buyers pay attention. Once you cross the appointed day, interest accrues automatically at three times the RBI bank rate, compounded with monthly rests. This is a penal rate by design, and it overrides any lower rate written into your contract.
| RBI bank rate | 6.5% |
| Statutory multiple | × 3 |
| Effective rate | ~19.5% a year |
| Compounding | Monthly rests |
On a ₹10 lakh invoice held for a year, that is roughly ₹2 lakh of interest, and it keeps compounding until paid. Two details make it even sharper: the interest is a legal entitlement you can claim in addition to the principal, and, for the buyer, this interest is expressly not allowed as a deduction under the Income Tax Act. So the buyer pays it out of post-tax money.
→ Work out your exact figure with our MSME delayed-payment interest calculator (with the month-by-month compounding the councils actually use).
Who Can Claim (and Who Cannot)
The rights above are not for everyone who calls themselves an MSME. Three conditions decide whether you can use them:
If you are not yet on Udyam, that is step zero. → Read our step-by-step Udyam registration guide before anything else, because your registration date can affect which invoices you can claim on.
How to File on MSME Samadhaan
If a buyer will not pay, you escalate to the Micro and Small Enterprises Facilitation Council (MSEFC) of your state, through the central MSME Samadhaan portal. It is free and entirely online. The journey looks like this:
Your case is only as strong as the paperwork you attach. The exact forms are set by each state council; Karnataka, for example, uses a numbered Format-1 to Format-4 set. Keep this bundle ready before you file:
→ See our screen-by-screen guide to filing on MSME Samadhaan (with the document checklist), and how the MSEFC hearing and arbitration actually run.
What It Is Really Like (From the Field)
I have filed these cases myself, against customers who would not pay on time and, eventually, would not even reply. The statute says 90 days. The reality is slower and more grinding, and you should go in with clear eyes.
The biggest wins usually come before a hearing, not from the award. A formal notice that quotes the 19.5% interest clock and Section 43B(h) tells the buyer exactly what non-payment costs them. Often that is enough. Treat the filing as leverage, and be prepared to see it through if they call your bluff.
The Buyer Side: Section 43B(h)
The single biggest shift in this area is not in the MSMED Act at all, it is in the Income Tax Act. Section 43B(h), effective from assessment year 2024-25, says a buyer can deduct the cost of buying from a micro or small enterprise only in the year it actually pays, if it misses the 15 or 45 day limit.
This is why, in the run-up to 31 March, finance teams scramble to clear MSME dues: an unpaid MSME bill inflates their taxable income. For you as the supplier, it is free leverage, simply flagging that you are a registered micro/small enterprise changes the buyer’s incentive to pay. On the compliance side, companies must also file the half-yearly MSME Form 1 return disclosing dues to micro and small suppliers outstanding beyond 45 days.
→ Read the full breakdown of Section 43B(h) for buyers and suppliers, and how to file the half-yearly MSME Form 1 return. Building a buyer-side compliance system? See our MSME vendor-compliance playbook.
Should You Actually File?
Here is the honest tension the brochures skip. Filing on Samadhaan is a formal, adversarial step against a customer, and if that customer is a large account you still want, it can sour the relationship. So the decision is not purely legal; it is commercial.
- Use the right as leverage first. A polite but formal notice citing the interest clock and 43B(h) often gets the invoice cleared without a hearing. Start here.
- File when the relationship is already gone, or when the buyer has stopped replying entirely, as in the cases I have filed. At that point there is nothing left to protect.
- File when the amount justifies the grind. Given the timelines above, small sums may not be worth the months of follow-up; large ones clearly are.
- Keep your paperwork clean from day one: written terms, purchase orders, delivery proof and a valid Udyam registration. The strength of your case is decided long before you file.
Delayed receivables are not just a legal problem, they are a cash-flow problem. Every month a ₹10 lakh invoice sits unpaid is working capital you have to fund some other way. The MSME remedy is one tool; disciplined credit terms, milestone billing and tracking your days-sales-outstanding are what stop you from needing it in the first place.
- The 45-Day Payment Rule Explained (Section 15)
- Filing on MSME Samadhaan: A Step-by-Step Guide
- MSME Delayed-Payment Interest: How It Is Calculated (+ Calculator)
- The MSEFC Process: Conciliation, Arbitration and Appeals
- Udyam Registration: Your Prerequisite to Claim
- Section 43B(h): The Tax Rule That Forces On-Time MSME Payment
- The Half-Yearly MSME Form 1 Return, Explained
- MSME Vendor-Compliance Playbook (Buyer Side)
“Most founders think they are powerless when a big customer stops paying. In fact the law puts a 19.5% clock on the buyer and can strip their tax deduction. The trick is knowing that, and being willing to use it.”
Ankit Sarawagi, CFOmatrixFrequently Asked Questions
What is the 45-day payment rule for MSMEs in India?
Under Section 15 of the MSMED Act 2006, a buyer must pay a registered micro or small enterprise within the date agreed in writing, and in any case within 45 days of accepting the goods or services. If there is no written agreement, the limit is 15 days. Beyond that period the buyer is legally in default and interest starts to run automatically.
How much interest can an MSME charge on delayed payment?
Section 16 of the MSMED Act sets the interest at three times the RBI bank rate, compounded with monthly rests, from the appointed day (the day after the 15 or 45 day period). At the recent bank rate of 6.5%, that is about 19.5% a year, compounding monthly. This rate overrides any lower rate in the contract, and the interest paid is not tax-deductible for the buyer.
How do I file a delayed payment case as an MSME?
File online, free of cost, on the MSME Samadhaan portal (samadhaan.msme.gov.in). The complaint goes to the Micro and Small Enterprises Facilitation Council (MSEFC) of your state, which first attempts conciliation and, if that fails, arbitration. You need a valid Udyam registration and your invoices, purchase order and proof of delivery. There is no court fee.
What is Section 43B(h) and how does it force buyers to pay MSMEs?
Section 43B(h) of the Income Tax Act, effective from AY 2024-25, says a buyer can claim the expense as a tax deduction only in the year it actually pays a micro or small enterprise, if payment is made beyond the 15 or 45 day MSMED limit. In practice this means a buyer who delays an MSME payment past year-end loses the deduction for that year and pays more tax, a strong incentive to clear MSME dues on time.
Is the MSME Samadhaan process fast in practice?
The law targets an award within 90 days, but the real timeline is longer. In practice it often takes around a month just for the council to issue the first hearing notice, followed by several hearings (four to six notices to each party). If a party keeps skipping hearings, the matter moves to arbitration, which requires fees to be deposited; if those fees are not paid, the case can be dropped. It is a real remedy, but it needs persistence.
Should a startup file against a large client it wants to keep?
This is the real tension. Filing on Samadhaan is a formal step that can strain a relationship with a big customer. Many founders use the MSME interest right first as leverage: a formal notice quoting the 19.5% clock and Section 43B(h) often gets the invoice paid without escalating to a hearing. File the actual case when the relationship is already lost or the amount is large enough to justify it.
Sources: Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, Sections 15, 16, 18 and 19; MSME Samadhaan portal (samadhaan.msme.gov.in); Income Tax Act, Section 43B(h) (effective AY 2024-25). RBI bank rate and effective interest figures are indicative and move with RBI notifications. Practitioner timelines reflect the author’s own filing experience and will vary by state council.
This is general educational information, current to mid-2026, and not legal or tax advice. Rates, forms and procedures change; verify the current position or consult a professional before acting on a specific matter.
AS | Founder, CFOmatrix | Finance Strategy & Equity Compliance CFOmatrix is a knowledge platform focused on how finance actually works inside growing companies. This guide draws on first-hand experience filing MSME delayed-payment cases, alongside the current statutory and tax position. |