Delayed payment interest, priced exactly.
Compound interest on a late payment to a micro or small enterprise under Section 16, the financial year your deduction actually lands in under Section 43B(h), and a ready demand notice you can issue.
Invoice Details
Results
Enter the invoice details and click Calculate Interest to see the computation.
A pre-litigation notice under Sections 15, 16 and 18. The Act prescribes no statutory form, so this is a commercial demand — have it reviewed before issue.
How the interest is calculated
Two provisions do the work. Section 15 sets the deadline, Section 16 prices the delay.
Step 1 — find the appointed day
The clock starts at acceptance or deemed acceptance of the goods or services, not at the invoice date. Where the buyer raises no written objection within 15 days of delivery, the delivery date becomes the date of deemed acceptance.
Step 2 — apply the statutory rate
Section 16 fixes the rate at three times the RBI bank rate, compounded with monthly rests, regardless of what the contract says and regardless of whether the supplier asks for it.
At a 5.50% bank rate the statutory rate is 16.50% per annum. Because it compounds monthly, the effective annual cost is closer to 17.81% — materially more expensive than most working capital lines, which is the point of the provision.
Step 3 — check the Section 43B(h) position
Section 43B(h), inserted by the Finance Act 2023 and effective from AY 2024-25, is separate from the interest and often costs more. Where a payment to a micro or small enterprise misses the Section 15 limit, the expense cannot be deducted in the year it accrued — it moves to the year of actual payment. For a March invoice paid in May, the deduction shifts an entire year and taxable profit in the earlier year rises by the full invoice value.
One asymmetry worth noting: the interest itself is not deductible. Section 23 of the MSMED Act disallows it, so it carries no tax shield.
Who Section 43B(h) actually covers
Three conditions must hold together. Miss any one and the provision does not bite.
| Condition | Covered | Not covered |
|---|---|---|
| Enterprise class | Micro and small | Medium enterprises, unregistered suppliers |
| Registration | Valid Udyam registration on the transaction date | Registered after the transaction, or never |
| Nature of supply | Manufacturers and service providers | Wholesale and retail traders |
MSME classification limits
Revised limits took effect from 1 April 2025. Both tests must be satisfied.
| Class | Investment in plant & machinery | Annual turnover | 43B(h) applies |
|---|---|---|---|
| Micro | Up to ₹2.5 crore | Up to ₹10 crore | Yes |
| Small | Up to ₹25 crore | Up to ₹100 crore | Yes |
| Medium | Up to ₹125 crore | Up to ₹500 crore | No |
Questions people ask
What is the interest rate on delayed payments to MSMEs?
Section 16 of the MSMED Act 2006 fixes it at three times the bank rate notified by the Reserve Bank of India, compounded with monthly rests. The RBI bank rate has stood at 5.50% since the December 2025 review and was left unchanged at the June 2026 policy, so the statutory rate is 16.50% per annum. It applies whether or not the purchase order mentions interest.
Is the payment limit 15 days or 45 days?
Both, depending on the contract. Where there is no written agreement on credit period, Section 15 requires payment within 15 days of acceptance or deemed acceptance. Where a written agreement exists the agreed period applies, but it can never exceed 45 days. An agreement purporting to allow 60 or 90 days is read down to 45.
Can the buyer contract out of this interest?
No. Section 16 applies notwithstanding anything contained in any agreement between the parties, and Section 24 gives Sections 15 to 23 overriding effect over any inconsistent law. A purchase order clause waiving interest or fixing longer credit is void to that extent.
Does Section 43B(h) apply to medium enterprises?
No. It covers micro and small enterprises only. The supplier must also hold a Udyam registration on the date of the transaction and must supply goods or services rather than trade in them, since wholesale and retail traders hold Udyam registration only for priority sector lending purposes.
Is the interest paid to an MSME allowed as a business expense?
No. Section 23 of the MSMED Act expressly disallows interest paid or payable under the Act when computing income under the Income Tax Act. It is a cash cost carrying no tax shield.
What if the RBI bank rate changes during the delay?
The Delhi High Court in Simplex Infrastructure held that Section 16 contemplates the rate prevailing at each monthly rest, producing a variable rate across a long delay rather than one rate fixed at the appointed day. This calculator applies a single rate throughout, which is the common practice for a demand notice. Where a delay spans a rate change and the sum is large, compute each period separately.
How long do I have to claim?
The Supreme Court has held that the Limitation Act 1963 applies to references under Section 18, so a claim before the Facilitation Council must generally be brought within three years from the date the right to sue arose. Waiting indefinitely is not safe.
What happens after I send a demand notice?
If payment does not follow, a micro or small enterprise with a valid Udyam registration can make a reference to the Micro and Small Enterprises Facilitation Council through the MSME Samadhaan portal. The Council conducts conciliation and, failing that, arbitration under Section 18.