What is the interest rate for delayed payment to MSME suppliers in 2025?

Under Section 16 of the MSMED Act, 2006, the interest rate is three times the RBI Bank Rate, compounded monthly. With the RBI Bank Rate at 5.55% (as of December 2025), the effective interest rate is 16.65% per annum. This rate changes whenever RBI revises the Bank Rate.

What is the 45-day rule under MSMED Act?

Under Section 15 of the MSMED Act, 2006, a buyer must pay a Micro or Small Enterprise supplier within the agreed date, provided it does not exceed 45 days from the date of acceptance of goods/services. If there is no written agreement, payment must be made within 15 days. Any delay beyond this triggers compound interest under Section 16.

Is MSME delayed payment interest compounded daily or monthly?

Under Section 16 of the MSMED Act, the compound interest is applied with monthly rests — meaning interest accrues on both principal and previously accumulated interest, recalculated at the end of each calendar month.

What is Form MSME-1 and what happens if it is not filed?

Form MSME-1 is a mandatory half-yearly return filed by "Specified Companies" with the ROC under Section 405 of the Companies Act, 2013. Companies must report all outstanding payments to Micro and Small Enterprise suppliers exceeding 45 days. If not filed, the company and each defaulting officer face a penalty of ₹20,000 fixed plus ₹1,000 per day, up to a maximum of ₹3,00,000 each under Section 405(4).

Is there a late fee on the MCA portal for delayed MSME-1 filing?

No. Unlike MGT-7 or AOC-4, Form MSME-1 does not carry a prescribed portal-level late fee under the Companies (Registration Offices and Fees) Rules. However, non-filing or late filing can still attract the adjudication penalty under Section 405(4) of the Companies Act, 2013.

Can Medium Enterprises claim interest under Section 16 of MSMED Act?

No. The delayed payment interest provisions under Sections 15–17 of the MSMED Act apply only to Micro and Small Enterprises. Medium Enterprises are not covered under the delayed payment protection. Similarly, Form MSME-1 covers only outstanding dues to Micro and Small suppliers — Medium Enterprise suppliers are excluded.

MSME Delayed Payment Interest & Penalty Calculator

Section 16 MSMED Act | 3× RBI Bank Rate | Monthly Compounding | Section 43B(h) Alert

Calculate compound interest under Section 16 of the MSMED Act 2006, and evaluate Form MSME-1 non-filing adjudication penalties.

🏭 MSMED Act 2006📊 Monthly Compounding⚠️ Sec 43B(h) Alert

DEFAULT PERIOD

— Days

INTEREST ACCRUED

₹0

Compounded Monthly

TOTAL PAYABLE

₹1,00,000

Principal + Interest

Interest Calculator Parameters

Invoice / Principal Amount (₹)

Date of Acceptance / Deemed Acceptance

Agreed Payment Date (Optional)Capped at 45 days from acceptance

Actual Payment Date

Payment not yet made (calculate up to today)

RBI Bank Rate (% p.a.)Bank Rate (5.55%) ≠ Repo Rate (5.25%)

MSME provisions comply with MSMED Act 2006 & Companies Act, 2013.

Delayed Payment Interest (Section 16)

Invoice Principal:₹1,00,000Appointed Day:Invalid DateDays Overdue:0 daysEffective Rate (3× Bank Rate):16.65% p.a.Compounding rests:Monthly

Interest Accrued (Section 16):₹0

TOTAL AMOUNT PAYABLE:₹1,00,000

⚠️ Tax Alert (Section 43B(h) & Section 23)

Interest paid to MSME suppliers is NOT tax-deductible under Section 23 of the MSMED Act.

Additionally, the buyer cannot claim a business expense deduction for the principal invoice amount if outstanding beyond 45 days (Section 43B(h) of the Income Tax Act).

How to recover outstanding MSME dues (MSME Samadhaan)

If a buyer disputes payment or delays it past the Appointed Day, MSME suppliers can file an online application at the MSME Samadhaan Portal (samadhaan.msme.gov.in) against the buyer.

Once filed, the case is routed to the local Micro and Small Enterprises Facilitation Council (MSEFC). The Council acts as an arbitrator to resolve disputes.

As per Section 18 of the MSMED Act, the MSEFC must decide the application within 90 days from the date of reference.

What is MSME Delayed Payment Interest Under Section 16?

Under Section 15 of the MSMED Act, 2006, buyers must make payments to Micro and Small enterprise suppliers within the agreed time, not exceeding 45 days from acceptance. If no written contract exists, payment is due within 15 days.

If payment is delayed, Section 16 mandates compound interest at three times the RBI Bank Rate. This interest compiles on a monthly rest basis. As of December 2025, with the RBI Bank Rate set at 5.55%, the statutory compound interest rate is 16.65% p.a.

Section 43B(h) — Why Delayed MSME Payments Also Hit Your Tax Deduction

Beginning in Assessment Year (AY) 2024-25, any outstanding payable to Micro or Small enterprise suppliers exceeding the 15/45-day deadline is disallowed as a business expense deduction under Section 43B(h) of the Income Tax Act, 1961.

The buyer is hit twice: first by the mandatory interest liability under the MSMED Act, and second by a higher income tax liability due to the disallowance of the principal amount as an expense.

What is Form MSME-1 and Who Must File It?

Form MSME-1 is a half-yearly return filed by specified companies that have outstanding dues exceeding 45 days to Micro and Small Enterprise suppliers. Specified companies are Pvt Ltd, Public Ltd, OPC, and Section 8 companies that meet these criteria. Note that Medium Enterprises are excluded from this reporting.

Penalty for Not Filing Form MSME-1

Under Section 405(4) of the Companies Act, 2013, failure to file MSME-1 carries an adjudication penalty starting at ₹20,000, with a continuing default penalty of ₹1,000 per day. The penalty is capped at ₹3,00,000 each for the company and officers in default. Small companies and OPCs receive a 50% penalty reduction under Section 446B.

Frequently Asked Questions (FAQs)

Questions about MSME delayed payment interest, 45-day rule, Section 43B(h), MSME-1 filing, and MSME Samadhaan.