MSME delayed payment interest calculator

How this is calculated

When payment falls due (section 15)

• Written agreement: pay on or before the agreed date, which cannot be more than 45 days from the day of acceptance or deemed acceptance. Last day to pay = acceptance date + the lower of the agreed days and 45.
• No written agreement: pay before the appointed day, which section 2(b) defines as the day after the expiry of 15 days from acceptance. Last day to pay = acceptance date + 15.
• Interest runs from the next day: the appointed day, or the day after the agreed date (section 16).

The interest (section 16)

Each monthly rest: balance × (1 + 3 × Bank Rate ÷ 12)
A part month: balance × 3 × Bank Rate ÷ 12 × days ÷ days in that month

• Compound with monthly rests: interest is added to the balance at the end of every month counted from the day interest starts, and itself earns interest after that.
• Rate: three times the Bank Rate notified by RBI. By default each month uses the Bank Rate prevailing at its start, as the Calcutta High Court held in V.K. Patel & Co v. Simplex Infrastructure (9 July 2024); you can instead fix it at the rate on the day interest started.
• Conventions: dividing the annual rate by 12 and pro-rating a part month by days are common practice, not rules in the Act; the Council or tribunal may compute slightly differently.
• Part payments are applied first to interest accrued and then to principal, as the Bombay and Jharkhand High Courts have held. A payment made on or before the due date simply reduces the principal.
• Interest stops when the principal and interest are cleared, or at the "up to" date.

Example check: ₹1,00,000 accepted on 1 January 2026 with 45 days' credit falls due on 15 February 2026. Unpaid for 12 full months from 16 February at a constant 16.50%, interest is ₹1,00,000 × ((1 + 0.165 ÷ 12)¹² − 1) = ₹17,807.

RBI Bank Rate used

For invoices accepted before February 2023, add the earlier Bank Rates from RBI's notifications.

For the buyer: the tax cost of paying late

• Section 37(2)(g) of the Income-tax Act, 2025 (formerly section 43B(h) of the 1961 Act, as the Finance Ministry confirmed in Parliament in July 2026) allows a deduction for an amount payable to a micro or small enterprise beyond the section 15 time limit only in the tax year in which it is actually paid. Unlike other items in section 37, there is no relief for paying before the return due date. A buyer with such bills unpaid on 31 March loses the deduction for that year.
• Section 23 of the MSMED Act says interest payable or paid under the Act is not deductible in computing income.
• Disclosure: a buyer whose accounts are audited must show principal and interest unpaid to micro and small suppliers in its annual accounts (section 22), and companies with dues outstanding beyond 45 days file a half-yearly MSME Form I with the Ministry of Corporate Affairs.

For the supplier: how to recover

• Refer the dispute to the Micro and Small Enterprises Facilitation Council of your state (section 18). It has jurisdiction over a supplier located in its area and a buyer anywhere in India, and the Act requires a reference to be decided within 90 days.
• File online: new delayed-payment cases go on the MSME ODR portal (odr.msme.gov.in) from 15 October 2025, which is being integrated with the earlier MSME Samadhaan portal. You need a valid Udyam registration.
• If conciliation fails, the Council takes up arbitration or refers it to an institution. A buyer that applies to set aside an award must first deposit 75% of it with the court (section 19).
• The MSMED (Amendment) Act, 2026 changes the dispute process (mediation, timelines, recovery of awards) but leaves sections 15 and 16, and so this calculation, unchanged. Check which of its provisions have been brought into force before you file.

Check that the Act applies. Only micro and small enterprises registered (Udyam) when the contract was made can claim; medium enterprises cannot. For works contracts, take legal advice: see our working capital guide for contractors.