What is the maximum credit period for MSME vendors?

Section 15 of the MSMED Act 2006 caps the credit period at 45 days from the date of acceptance (or deemed acceptance — 15 days after delivery). Payment beyond this period attracts mandatory interest.

Is MSME interest tax-deductible?

No. Section 23 of the MSMED Act and Section 43B(h) of the Income Tax Act 1961 explicitly disallow MSME interest as a business deduction. It is a permanent tax cost.

What is Section 22 MSME disclosure?

Section 22 of the MSMED Act requires every company with MSME dues to disclose outstanding principal, unpaid interest, interest paid during the year, and further interest accrued — as a mandatory note in annual financial statements.

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

Inserted by Finance Act 2023, Section 43B(h) disallows amounts payable to Micro and Small enterprises as business deductions if unpaid beyond the MSMED Act due date. The deduction is only available in the year of actual payment.

MSMECalc

MSME Interest Calculator

MSMED Act, 2006 — Section 16 · Compound Interest · Monthly Rests

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Frequently Asked Questions

What is the interest rate for delayed MSME payments?+

Under Section 16 of the MSMED Act 2006, interest on delayed payments to MSME suppliers is charged at 3 times the RBI Bank Rate, compounded with monthly rests. The current RBI Bank Rate is 5.5%, making the MSME interest rate 16.5% per annum.

What is the maximum credit period allowed for MSME vendors?+

Under Section 15 of the MSMED Act 2006, the maximum credit period is 45 days from the date of acceptance (or deemed acceptance) of goods or services. If no credit period is agreed upon in writing, payment must be made within 15 days.

What is deemed acceptance under the MSMED Act?+

If the buyer does not communicate acceptance or rejection of goods/services within 15 days of delivery, it is treated as 'deemed acceptance' under Section 2(b) of the MSMED Act. The 45-day credit period starts from this deemed acceptance date.

Is MSME interest deductible as a business expense?+

No. Under Section 23 of the MSMED Act 2006 and Section 43B(h) of the Income Tax Act 1961, interest paid on delayed payments to MSME vendors is not deductible as a business expense for income tax purposes.

What is the Section 22 MSME disclosure in financial statements?+

Section 22 of the MSMED Act requires companies to disclose in their annual financial statements: (i) principal amount due, (ii) interest due thereon, (iii) interest paid during the year, (iv) interest due and payable, and (v) interest accrued but not due. MSMECalc generates this note automatically.

How is MSME compound interest calculated?+

Interest is calculated on the principal amount from the day after the due date, compounded monthly with monthly rests. The formula uses 3× RBI Bank Rate ÷ 12 per month, applied to the outstanding balance (principal + accrued interest) at each monthly compounding point.

MSME Interest Calculator — Section 16, MSMED Act 2006

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 requires buyers to pay their MSME suppliers within a maximum credit period of 45 days from the date of acceptance of goods or services. If payment is delayed beyond this period, the buyer is liable to pay compound interest at 3 times the RBI Bank Rate with monthly rests under Section 16.

This free MSME interest calculator computes the exact interest payable under Section 16, using the live RBI Bank Rate. It supports partial payments, multiple rate changes, and generates results instantly — no login required.

How MSME Interest is Calculated

Find the Due Date

The due date is the acceptance date (or deemed acceptance — 15 days after delivery) plus the agreed credit period, capped at 45 days under Section 15.

Interest Starts Next Day

Interest under Section 16 begins accruing from the day after the due date, on the full outstanding principal amount.

Rate = 3× RBI Bank Rate

The interest rate is 3 times the prevailing RBI Bank Rate per annum (currently 5.5% × 3 = 16.5% p.a.), compounded with monthly rests.

Monthly Compounding

At each monthly interval, accrued interest is added to the principal. Subsequent interest is then charged on this higher balance — compound interest.

Key Provisions of MSMED Act 2006

Section 2(b)

Deemed Acceptance

If the buyer does not communicate acceptance or rejection within 15 days of delivery, goods/services are deemed accepted.

Section 15

Maximum Credit Period

Payment must be made within the agreed period (max 45 days). If no agreement, within 15 days of delivery/acceptance.

Section 16

Interest on Delay

Compound interest at 3× RBI Bank Rate with monthly rests is payable for every day of delay beyond the due date.

Section 22

FS Disclosure

Companies must disclose outstanding MSME dues, interest paid, and interest accrued in their annual financial statements.

Section 23

Not Tax Deductible

Interest paid on delayed MSME payments is not deductible as a business expense under the Income Tax Act.

Section 43B(h) IT Act

Disallowance

Amounts due to MSME suppliers unpaid beyond 45 days are disallowed as business expenses under Section 43B(h) of the IT Act 1961.

Section 22 Financial Statement Disclosure Format

Every company that has outstanding dues to MSME suppliers must include the following note in its annual financial statements (Schedule III, Companies Act 2013):

The principal amount and interest due thereon remaining unpaid to any MSME supplier at the end of the accounting year.
The amount of interest paid by the buyer under MSMED Act, along with the amount of payment made to the MSME supplier beyond the appointed day during the year.
The amount of interest due and payable for the period of delay in payment (which has been paid but beyond the appointed day during the year) but without adding the interest specified under the MSMED Act.
The amount of interest accrued and remaining unpaid at the end of the accounting year.
The amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the MSME, for the purpose of disallowance as a deductible expenditure under Section 23 of the MSMED Act.

For compliance reference only. Not a substitute for professional legal or tax advice. Always verify the current RBI Bank Rate at rbi.org.in.