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MSME Delayed Payment Interest Calculator

Calculate statutory compound interest payable on delayed payments to Micro & Small Enterprises (MSEs) under Section 16 of the MSMED Act, 2006. Interest rate = 3× RBI bank rate.

Last verified: 16 September 2026 · RBI Bank Rate: 5.50% · Penalty Rate: 16.50% p.a. (Monthly Rests)

Current RBI bank rate is 5.50%. Statutory Interest = 3 × bank rate = 16.50% p.a. (compounded with monthly rests).

Days Delayed 0 days
Applicable Rate (3× RBI bank rate) 16.50% p.a.
Estimated Statutory Interest Compounded with monthly rests
₹0.00
Total Estimated Payable (Principal + Interest) ₹0.00
Statutory Scope: Applicable strictly to registered Micro and Small Enterprises (MSEs). Medium enterprises and retail/wholesale trading entities (NIC 45/46/47) are not covered under Chapter V Section 16 recovery.

MSME Delayed Payment Rules — Section 16 Explained

Under Chapter V (Sections 15–24) of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, delayed payment protections apply strictly to Micro and Small Enterprises (MSEs). Under Section 15, any buyer purchasing goods or services from an MSE supplier must make payment within 45 days from the date of acceptance (where agreed in writing) or within 15 days if there is no written contract.

If payment is not released on time, Section 16 mandates that the buyer pays compound interest at three times the bank rate notified by the Reserve Bank of India (RBI). As of September 2026, the RBI bank rate is 5.50%, making the applicable statutory interest rate 16.50% per annum, compounded with monthly rests.

Key Eligibility & Compliance Rules for MSE Suppliers

  • Restricted to Micro & Small Enterprises: Statutory delayed payment interest and MSEFC reference apply exclusively to Micro and Small enterprises. Medium enterprises are excluded from Section 16 recovery.
  • Traders Excluded (NIC 45/46/47): Retail and wholesale traders registered under Udyam are eligible solely for Priority Sector Lending (PSL) benefits and are not eligible for Section 16 interest or Section 43B(h) protection.
  • Mandatory timeline: Maximum 45 days under contract, or 15 days without agreement. Any contract clause stipulating 60, 90, or 120 days is void under law.
  • Statutory interest rate: 3× RBI bank rate (currently 16.50% p.a.), compounded with monthly rests.
  • No contractual waiver: Section 16 contains an overriding non-obstante clause; buyers cannot contractually waive this liability.
  • Tax disallowance (Double Penalty): Under Section 23 of the MSMED Act, interest paid is not deductible as a business expense. Under Section 43B(h) of the Income Tax Act, overdue principal amounts are disallowed and added back to taxable profit.
  • Udyam registration prerequisite: The supplier must possess a valid Udyam registration on or before the invoice date to enforce statutory remedies.
Primary Statutory Sources & Regulatory References
  • • Reserve Bank of India: Current Policy Rates & Bank Rate (5.50%) · RBI Official Portal ↗
  • • MSME Samadhaan: Delayed Payment Dispute Filing & Facilitation Council Rules · samadhaan.msme.gov.in ↗
  • • Statutory Provisions: Sections 15, 16, and 23 of the MSMED Act, 2006; Section 43B(h) of the Income Tax Act, 1961.

Read our in-depth legal analysis: MSME Delayed Payment Interest Rate: 3x RBI Bank Rate Rules & Section 16 Calculation (2026). For small business tax planning, also check our MSME Registration Checker, our GST for freelancers guide, and our GST Aggregate Turnover Calculator.

Frequently Asked Questions

What is the statutory interest rate on delayed payments to MSMEs under Section 16?
Under Section 16 of the MSMED Act, 2006, the interest rate is strictly three times the RBI Bank Rate (currently 5.50%), amounting to 16.50% per annum. It is compounded with monthly rests and is mandatory by law.
Who is eligible to claim interest under Section 16 of the MSMED Act?
Delayed payment protections under Chapter V (Sections 15-24) apply strictly to Micro and Small Enterprises (MSEs) holding a valid Udyam registration on or before the invoice date. Medium enterprises and trading entities are excluded.
What is the maximum statutory credit period for paying MSE suppliers?
Under Section 15, the agreed payment period cannot exceed 45 days from the date of acceptance. If there is no written contract, payment must be released within 15 days. Any contract clause attempting to enforce longer terms (e.g. 60 or 90 days) is void ab initio.
What does "monthly rests" mean in Section 16 compound interest calculation?
Monthly rests means that at the end of each calendar month, accrued statutory interest is added to the principal balance, and subsequent interest is calculated on this cumulative amount. This prevents debtors from treating unpaid balances as cheap credit.
Can a buyer contractually agree with an MSE supplier to waive delayed payment interest?
No. Section 16 contains an overriding non-obstante clause ("Notwithstanding anything contained in any agreement..."). Statutory interest is mandatory by operation of law and cannot be waived, reduced, or modified by contract.
Is interest paid on delayed MSE payments tax-deductible for the buyer?
No. Under Section 23 of the MSMED Act, interest paid or payable on delayed payments to Micro and Small enterprises is strictly non-deductible when computing taxable business profits under the Income-tax Act, 1961.
How does Section 43B(h) of the Income Tax Act enforce timely payments to MSEs?
Section 43B(h) disallows any payment due to a Micro or Small enterprise remaining unpaid beyond the Section 15 deadline (15/45 days) as a business deduction in that financial year, adding the overdue principal back to taxable income unless discharged before the financial year ends.
Are retail and wholesale traders registered under Udyam eligible for Section 16 interest?
No. As clarified by the Ministry of MSME (Office Memorandum No. 5/2(2)/2021-E/P&G/Policy), retail and wholesale traders (NIC codes 45, 46, and 47) registered under Udyam are eligible solely for Priority Sector Lending (PSL) benefits and cannot claim Section 16 remedies or Section 43B(h) protections.
Where and how can an MSE supplier file a claim for delayed payment recovery?
MSE suppliers can file an online reference against defaulting buyers on the MSME Samadhaan portal (samadhaan.msme.gov.in) before the Micro and Small Enterprise Facilitation Council (MSEFC) of their state, which conducts statutory conciliation and arbitration.
Does this calculator output represent a formal legal decree?
No. This calculator provides an accurate statutory estimate based on the current RBI Bank Rate (5.50%) and Section 16 compounding rules for financial planning and reconciliation. Official recovery requires reference to the MSEFC or appropriate legal forum.