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✓ MSMED Act Section 16

MSME Interest Calculator

Calculate the exact delayed payment compound interest owed to MSMEs under the MSME Samadhaan scheme.

MSME Samadhaan: Under Section 16 of the MSMED Act, delayed payments to Micro and Small Enterprises attract compound interest with monthly rests at three times the RBI repo rate.

Payment is legally due within 45 days of acceptance.

Applicable interest rate will be 19.5% per annum.

Understanding MSME Delayed Payment Rules (Section 16, MSMED Act)

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 contains stringent provisions to protect micro and small suppliers from delayed payments by large buyers. These rules ensure that MSMEs maintain healthy working capital cycles.

⏱️The 45-Day Rule

Under Section 15 of the MSMED Act, buyers must make payments on or before the date agreed upon in writing. However, this agreed-upon period cannot exceed 45 days from the day of acceptance.

📈3x Repo Rate Penalty

If payment is delayed beyond 45 days, the buyer is legally obligated under Section 16 to pay compound interest with monthly rests at three times (3x) the bank rate notified by the RBI.

Additional Repercussions for Defaults

  • No Income Tax Deduction: Any interest paid or payable to MSMEs under these rules is expressly disallowed as a deduction when calculating the buyer's taxable income (Section 23).
  • Statutory Reporting: Companies must disclose the exact principal amount and interest owed to MSMEs in their annual financial statements and half-yearly via the MSME-1 form.
  • Samadhaan Portal: MSMEs can file cases directly on the MSME Samadhaan portal. The Facilitation Council can order the buyer to pay the principal along with the penal interest calculated above.

MSME Delayed Payment FAQs

MSME Samadhaan is a portal and scheme launched by the Ministry of Micro, Small and Medium Enterprises. It empowers micro and small entrepreneurs across the country to directly register their cases relating to delayed payments by Central Ministries/Departments/CPSEs/State Governments or any other buyer.

Under Section 15 of the MSMED Act, the buyer must make payment within the period agreed upon in writing. In no case should this period exceed 45 days from the day of acceptance of the goods/services. If there is no written agreement, the payment must be made within 15 days.

If the buyer fails to pay within 45 days, they are liable to pay compound interest with monthly rests. The rate of interest is three times (3x) the bank rate notified by the Reserve Bank of India (RBI Repo Rate).

No, as per Section 23 of the MSMED Act, the interest paid or payable by a buyer for delayed payments to an MSME is NOT allowed as a deduction under the Income Tax Act, 1961. This adds an additional tax burden on the defaulting buyer.

Failure to file Form MSME-1 detailing outstanding dues to micro and small enterprises attracts penalties under Section 450 of the Companies Act, which can result in a fine of up to ₹10,000, and a further fine up to ₹1,000 for every day the default continues.