Compliance Calendar

The MSME 45-Day Payment Rule, Explained

Published 30 August 2026 · 4 min read

If the vendor or freelancer you're paying is registered as a Micro or Small Enterprise, Indian law caps how long you can take to pay them — and it overrides your own contract terms automatically, whether you knew about it or not.

The actual rule

Section 15 of the MSMED Act, 2006 sets a payment deadline for buyers dealing with Udyam-registered Micro or Small Enterprises: payment must be made within the period agreed in writing, which cannot exceed 45 days from the date of acceptance of goods or services.

No written agreement

Default drops to just 15 days — the shorter deadline applies automatically if payment terms were never put in writing.

Written agreement

Maximum 45 days — this is a hard statutory ceiling, not a negotiable default. Agreeing to 60 or 90 days in your contract doesn't override it.

After deadline

Compound interest starts accruing automatically at 3 times the RBI-notified bank rate — and importantly, this interest is not tax-deductible for the paying business.

The part most businesses miss

This isn't just a civil obligation between two businesses anymore. Under Section 43B(h) of the Income Tax Act (effective from 1 April 2024), if you don't pay a Udyam-registered Micro or Small Enterprise within the statutory timeline, you lose the tax deduction for that expense entirely — a real, direct cost that shows up on your own tax return, not just a vendor relationship problem.

Applies to Micro and Small only. Medium Enterprises are not covered by this specific timeline — confirm your vendor's actual Udyam classification, not just that they're registered at all.

What this means practically

Before finalising payment terms with any vendor or freelancer, ask directly: are they Udyam-registered, and if so, as a Micro, Small, or Medium enterprise? If Micro or Small, build your payment terms around the 45-day ceiling from the start, rather than discovering the mismatch later when interest has already started accruing.

Every Seedha Kanoon template involving vendor or freelancer payments includes this rule directly in the Verification Passport — check the specific template you're using to confirm it's addressed.

Working with vendors or freelancers?

Our Vendor Service Agreement and Freelance Service Agreement both build this rule in directly.

View Vendor Service Agreement →

Sources: MSMED Act, 2006, Sec 15-16; Income Tax Act, 1961, Sec 43B(h) (effective 1 April 2024). This is general legal information, not legal advice — consult an enrolled advocate or chartered accountant for your specific situation.