What is the MSME 45-day payment rule?

Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 sets the limit. If no payment time is agreed in writing, payment is due within 15 days. Section 16 charges interest on late payment. Since the 2023 amendment to section 43B of the Income-tax Act, 1961, a buyer can deduct an amount owed to a micro or small enterprise only in the year it is paid, if it was paid late.

A contractor's vendors and subcontractors are often micro or small enterprises. Paying them at 60 or 90 days, which the contract may say, can mean interest owed and a tax deduction deferred, even when the contract allows it.

The limit applies to suppliers registered as micro or small, which is checked against the supplier's Udyam registration, and not to every vendor. The interest rate, the definition of accepted, and the tax treatment have all been amended before, so check the current text of the MSMED Act, 2006 and section 43B of the Income-tax Act, 1961. Take advice before acting on this definition.

Counting from the invoice date

The statutory clock starts from the day of acceptance or deemed acceptance of the goods or services, not from the day the invoice was received.

Assuming the contract overrides the Act

A longer period written into a purchase order does not extend the statutory limit for a micro or small supplier. Section 15 caps what can be agreed.

Crestline compares each vendor payment against the date of acceptance and flags micro and small suppliers approaching the limit, so late payments are caught before they cost interest.