What the rules say
| Rule | What it means for you |
|---|---|
| MSMED Act, Section 15 | Pay a registered micro or small supplier within the agreed period, at most 45 days from acceptance of the goods or services. With no agreement, within 15 days. |
| MSMED Act, Section 16 | Late payments attract compound interest at three times the bank rate notified by the RBI. |
| Income Tax Act, Section 43B(h) | From 1 April 2023, an amount owed to a micro or small enterprise beyond the MSMED limit is deductible only in the year you actually pay it. |
This is a plain summary, not legal or tax advice. Check how it applies to your firm with your CA.
Which vendors it applies to
It applies to vendors registered on Udyam as micro or small enterprises. Medium enterprises are not covered by Section 43B(h), and traders are generally treated differently, so record each vendor's Udyam category when you onboard them.
For an interior firm, that often includes carpenters' workshops, fabricators, false ceiling and painting contractors, and small material suppliers.
What to track
- Each vendor's Udyam registration and category.
- The agreed payment period in the purchase order or contract, not more than 45 days.
- The date each bill was accepted, which starts the clock.
- A pay-by date for every open bill, reviewed every week.
Questions people ask
Does the 45-day rule apply to every vendor?
No. It applies to suppliers registered as micro or small enterprises under the MSMED Act. Check each vendor's Udyam category.
What happens if I pay an MSME vendor late?
The vendor can claim interest at three times the RBI bank rate, and under Section 43B(h) your tax deduction for that expense moves to the year you actually pay.
When does the 45 days start?
From the day you accept the goods or services, or the day of deemed acceptance. Record that date for every bill.