CFOSurge India/Owner questions/MSME rules

The MSME 45-day rule: a cost if you buy, a lever if you sell

A 3-minute check to see where you stand, and what to do before the year closes. The full guide is underneath.

The problem

Paying micro and small suppliers late can cost you a tax deduction and interest, while customers who pay you late may be breaking the same rule.

The way out

Know who's covered, put terms in writing, pay on time as a buyer, and use your rights as a supplier.

The way out, step by step

Five steps to get the 45-day rule working for you

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The full guide

Everything behind your answer, in detail

Read only the sections you need. Each one stands on its own.

Prepared by the CFOSurge India CFO team

The answer in brief

Under the MSMED Act, a buyer must pay a micro or small enterprise by the agreed date, which can't be more than 45 days, or within 15 days if there's no written agreement. Late payment carries compound interest at three times the RBI bank rate, and that interest isn't tax-deductible. The Income-tax Act adds a second consequence: a buyer who pays a micro or small supplier late gets the deduction only in the year of actual payment. This rule began as Section 43B(h) and is carried into the Income-tax Act, 2025. If you buy, check every supplier's Udyam status and pay on time, especially before the year ends. If you sell and are registered, put the terms on your invoices and use them.

On this page
  1. Questions first
  2. How the rule works
  3. Your exposure
  4. As a supplier
  5. Six industry cases
  6. What to do now
  7. Monthly routine
  8. Mistakes to avoid
  9. Official sources
  10. Key terms
  11. Questions owners also ask
Stage 1 · Notice

Answer these questions before you read on

Commit to an answer before you open each one. Together they show where the problem is.

1How many of your suppliers are micro or small enterprises registered on Udyam?

If you don't know, you can't tell how much of your deduction is at risk.

2What payment terms are in your purchase orders with them?

With no written agreement, the limit is 15 days, not 45.

3Which supplier invoices will still be unpaid on 31 March?

Late payments to micro and small suppliers unpaid at year-end can cost you the deduction for that year.

4If you're a supplier, do your invoices mention your Udyam number and the payment terms?

Your rights exist whether or not you mention them, but buyers respond to invoices that do.

5Do traders count as MSMEs for this rule?

Generally not. Retail and wholesale traders can register on Udyam for priority-sector lending, but the delayed-payment protection doesn't extend to them.

The same rule protects you as a seller and costs you as a buyer. Most businesses are both.

Stage 2 · Understand

Two laws, one deadline

The MSMED Act: the supplier's right

Pay a registered micro or small supplier by the agreed date (never more than 45 days) or within 15 days without a written agreement. Late payment carries compound interest with monthly rests at three times the RBI bank rate, and the buyer can't deduct that interest for tax.

The Income-tax Act: the buyer's deduction

If a buyer pays a micro or small supplier later than the MSMED Act allows, the expense is deductible only in the year it's actually paid. Paying before the year ends keeps the deduction in that year. Medium enterprises are outside this rule.

Stage 3 · Locate

Find your exposure as a buyer

  1. List every supplier and check their Udyam certificate: micro, small, medium or not registered.
  2. Check the payment terms agreed with each micro and small supplier, in writing.
  3. List invoices from them that are past the agreed date, or past 15 days without an agreement.
  4. Estimate what will still be unpaid at year-end.

Then compare the cost of paying on time, financed by your CC, with the cost of paying late:

Compare two finance optionsEnter each lender's quote
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Free template
MSME supplier payment tracker (Excel)Track every micro and small supplier's due date against the 45-day rule.Download free →
Stage 4 · Verify

Use your rights as a supplier

  • Keep your Udyam registration current and share the certificate with every buyer.
  • Print the agreed terms and your Udyam number on every invoice.
  • Track overdue invoices from each buyer, with interest calculated.
  • Offer TReDS to large buyers: you're paid early at a rate based on their credit.
  • Use MSME Samadhaan for persistent delays, with your legal adviser.

See what slow payers are costing you:

What slow payers cost youExample figures · replace with yours
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Stage 5 · Compare

Six businesses, six versions of the same problem

The same problem looks different in every industry. Pick the business closest to yours:

These are composite businesses with illustrative figures, built to show how the method works. They are not CFOSurge client results.

Hover over a business for a preview (tap on a phone), then click to open the full case.

Stage 6 · Act

What to do before the year closes

  • Buyers: pay overdue micro and small suppliers before 31 March to keep the deduction in this year; fix purchase terms in writing for next year.
  • Suppliers: send buyers a polite statement of overdue invoices and the MSMED terms before their year-end. It's when they're most motivated to pay.
  • Both: build supplier and customer MSME status into your accounting masters.
Year-end in a few weeks? List micro and small supplier dues by age, pay the oldest first, and fund it from the CC if needed. The tax saved usually exceeds the interest.
Stage 7 · Prevent

Keep it under control every month

  1. Tag MSME status in every supplier and customer master.
  2. Run an ageing of micro and small supplier dues monthly.
  3. Pay within terms, or renegotiate terms in writing.
  4. As a supplier, send overdue statements monthly.
Stage 8 · Avoid

Mistakes to avoid

  • Assuming the 45 days applies without a written agreement (it's 15).
  • Treating traders as MSMEs for this rule.
  • Ignoring supplier status changes from micro to medium, or back.
  • Paying late at year-end to save cash, then losing the deduction.
  • As a supplier, staying silent on your rights.
Reference

Official sources and guidance

Rules, rates and thresholds change. Check the current position at these official sources before acting.

Reference

Key terms in plain English

4 terms
MSMED Act
The Micro, Small and Medium Enterprises Development Act, 2006, which includes the delayed-payment provisions.
Udyam registration
Registration as a micro, small or medium enterprise, needed to claim MSME protections.
TReDS
An RBI-regulated platform where MSME invoices on large buyers are discounted.
MSME Samadhaan
The government portal for filing delayed-payment cases.
Reference

Questions owners also ask

What is the MSME 45-day payment rule?

Buyers must pay registered micro and small enterprises by the agreed date, never more than 45 days, or within 15 days without a written agreement. Late payment carries interest, and buyers can claim the expense for tax only in the year they actually pay.

Is Section 43B(h) still in force under the new Income-tax Act?

The rule is carried into the Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026. Confirm the current section and position with your tax adviser.

Does the rule apply to traders?

Generally no. Retail and wholesale traders can register on Udyam for priority-sector lending, but the delayed-payment protection doesn't apply to them.

Want a CFO to work through this with you?

If you'd like your MSME exposure mapped across suppliers and customers, A CFOSurge CFO can go through it with you using your actual numbers.

  • Plans from ₹50,000 a month, fixed after a free assessment
  • Free consultation with a senior CFO
  • No cost, no obligation
  • Pay nothing if you don't see value in the first 2 weeks

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CFOSurge India · General information only. It isn't financial, tax or legal advice for your circumstances. Worked examples use illustrative figures. · Follow us on YouTube · LinkedIn