MSME 45-Day Payment Rule for Contractors: interest calculator and how to claim

MSME delayed payment interest calculator

The bank rate defaults to 5.75%, as reported after the RBI's 7 October 2026 policy. Interest legally follows the rate notified for each period of delay, so check RBI's website and adjust. Part-months are counted pro rata. This is an estimate, not legal advice.

What is the MSME 45-day payment rule?

43B(h) is now Section 37(2)(g)

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. The MSME payment rule that most people know as Section 43B(h) continues as Section 37(2)(g) of the new Act, as reported following a Rajya Sabha reply (TaxGuru). The 15-day and 45-day limits didn't change. It applies to payments to micro and small enterprises, not medium ones (ClearTax).

When you are the buyer: the cost of paying late

A contractor buys steel worth ₹5,00,000 from a micro enterprise on 1 March 2027 under a 45-day agreement, so payment is due by 15 April 2027. It pays on 30 May 2027. Because the payment crossed the year-end late, the ₹5,00,000 deduction moves from FY 2026-27 to FY 2027-28. At an assumed 30% tax rate, that's about ₹1,50,000 of tax paid a year early. Track MSME suppliers' due dates, especially in March.

When you are the MSME: interest on late payment

Under Section 16 of the MSMED Act, a buyer who pays late owes compound interest with monthly rests at three times the RBI bank rate, and courts have held that the contract can't waive it (LiveLaw).

Example: an invoice of ₹10,00,000, paid three months after its due date, at a 5.75% bank rate (17.25% a year, 1.4375% a month): 10,00,000 × (1.014375³ − 1) = ₹43,748.

RA bills, certification and retention: the open questions

• When is an RA bill "accepted"? The clock usually runs from acceptance of the goods or services. On works contracts, certification of the RA bill is often treated as acceptance, but there's no settled ruling, so document certification dates.
• Retention money. Whether retained amounts are "due" for the 45-day rule hasn't been settled. Take your CA's view and write it into the contract.
• Traders and medium enterprises. The tax rule covers micro and small enterprises. Treatment of traders is contested, so check Udyam registration details before relying on it.

For when payments on RA bills fall due generally, see the RA bill payment timeline.

How to claim: MSME Samadhaan, MSEFC and the 2026 amendment

• MSME Samadhaan. File a delayed-payment application online. It goes to the state's Micro and Small Enterprises Facilitation Council (MSEFC), which tries conciliation, then arbitration. By mid-August 2026, the portal had about 2.57 lakh applications worth ₹55,244 crore (Tribune / Crisil).
• The 2026 amendment. Parliament passed the MSMED (Amendment) Bill in August 2026, adding a 90-day mediation window and faster arbitration timelines (Vinod Kothari). As of early October it had not been notified, so the current procedure still applies.
• TReDS. Invoice-discounting platforms let MSMEs get paid early on invoices accepted by large buyers. Central public sector companies were reportedly required to onboard all MSME payments to TReDS from 30 June 2026.

Government pending bills. Contractors' associations in Maharashtra and Karnataka are claiming tens of thousands of crores in unpaid state dues in 2026. Whether MSMED interest can be claimed from a state government department depends on the contract and the buyer, so take legal advice before filing.

Know what's due, from whom, and since when

True Site Sync keeps every bill and payment against each client, vendor and subcontractor, with deductions recorded separately, so the ageing of what you owe and what you're owed is a report, not a spreadsheet. See cash flow.