CORAA University · Free tool

MSME delayed payment interest calculator 2026

A micro or small supplier paid late is owed compound interest, with monthly rests, at three times the RBI bank rate — 16.50% a year for delays in FY 2025-26 from 5 December 2025 and in FY 2026-27 to date — whatever the purchase order says. Enter the invoice, the acceptance date and the payment date. You get the last day to pay, the days of delay, the interest month by month, and the figures that go into the notes and the tax audit report.

Explore all tools

The supplier

Status on the Udyam certificate at the time of supply

The invoice and the dates

Amount unpaid on the due date (₹)

The invoice amount still owed when the payment window closed

Goods delivered / services rendered on

The clock starts at delivery, not at the invoice date

Did the buyer object in writing within 15 days of delivery?

If yes, acceptance moves to the day the supplier removed the objection

Is there a written agreement on the credit period?

Without one, payment is due within 15 days of acceptance

Has the invoice been paid?

Date of payment

The bank rate

RBI bank rate (% a year)

Interest runs at three times this: 16.50% a year. The bank rate was 5.50% when this page was reviewed on 1 October 2026 — change it if RBI has moved since, or to test an earlier period.

Recent bank rates, for reference

Not sure the supplier is micro or small? Check the Udyam classification — and for the deduction on the purchase itself, run the invoice through the 43B(h) checker. CORAA runs the same test across the whole creditors ledger during an audit.

How interest on a delayed payment to an MSME is worked out in 2026

Start with the last day to pay. Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 requires a buyer to pay a micro or small supplier on or before the date agreed in writing, and that date cannot be more than 45 days from the day of acceptance or deemed acceptance. Where nothing is agreed in writing, payment must be made before the "appointed day" — the day immediately after 15 days from acceptance. Acceptance is normally the day of actual delivery of the goods or rendering of the services. If the buyer objects in writing within 15 days of delivery, acceptance shifts to the day the supplier removes the objection. If no written objection is raised in that time, the delivery date itself is the day of deemed acceptance.

Then the rate. Section 16 makes the buyer liable for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, from the appointed day or from the day immediately after the agreed date. It applies despite anything in the agreement or in any other law, so a lower contractual rate or an interest waiver in the purchase order does not displace it. The bank rate has been 5.50% since 5 December 2025, which makes the Section 16 rate 16.50% a year; it was 5.75% from 6 June 2025 and 6.25% from 9 April 2025. The rate box is editable because the bank rate moves with monetary policy.

Then the compounding. "Monthly rests" means the interest for each month is added to the amount owed, and the next month’s interest is charged on the larger figure. The Act does not lay down a day-count rule for a broken month, so this calculator states its convention: one-twelfth of the annual rate for each complete month counted from the due date, and the remaining days at the annual rate over 365. The Act is also silent on which day’s bank rate governs when the rate changes during the delay; where it did, compute each stretch at the rate then in force and carry the balance forward.

The interest has two consequences beyond the payment itself. Section 23 bars any deduction for it in computing income, permanently. And Section 22 requires a buyer whose accounts are audited to disclose the unpaid principal and interest, the interest paid and accrued, and the further interest carried into later years — the particulars Schedule III asks a company to give in its notes.

Worked example (2026) — ₹10 lakh paid 136 days late

A small enterprise delivers goods worth ₹10,00,000 on 10 January 2026. The buyer raises no objection and there is no written agreement on credit. The buyer pays on 10 June 2026. The bank rate throughout is 5.50%.

Inputs

Day of deemed acceptance10 January 2026 (delivery date)

Last day to pay25 January 2026 (15 days)

Interest runs from26 January 2026 (the appointed day)

Delay136 days — 4 complete months to 25 May, plus 16 days

Rate3 × 5.50% = 16.50% a year, 1.375% a month

Output

Month 1 interest₹13,750 → balance ₹10,13,750

Month 2 interest₹13,939 → balance ₹10,27,689

Month 3 interest₹14,131 → balance ₹10,41,820

Month 4 interest₹14,325 → balance ₹10,56,145

Last 16 days₹10,56,145 × 16.50% × 16/365 = ₹7,639

Interest payable under Section 16₹63,784

Simple interest for the same 136 days would be ₹61,479, so the monthly rests add about ₹2,300. With a written 45-day agreement the last day to pay would have been 24 February 2026 and the delay 106 days. The ₹63,784 is disallowed in the tax computation under Section 23 and reported in clause 22 of Form 3CD.

Common mistakes

Counting from the invoice date

The clock runs from acceptance, which is the day of actual delivery of goods or rendering of services, not the date printed on the invoice. Ageing reports built on invoice dates overstate some delays and miss others.

Reading "deemed acceptance" as delivery plus 15 days

Where the buyer raises no written objection within 15 days, the day of deemed acceptance is the delivery date itself. The 15 days is the time allowed to object, not an addition to the payment window.

Relying on a 60 or 90-day credit clause

The proviso to Section 15 does not allow the agreed period to exceed 45 days from acceptance. A longer clause in the purchase order does not extend the time for a micro or small supplier, and interest starts once the 45 days are over.

Using simple interest, or the contract rate

Section 16 prescribes compound interest with monthly rests at three times the bank rate, despite anything in the agreement. A contractual 12% or an interest-free clause does not apply.

Using the repo rate instead of the bank rate

The bank rate is a separate rate published by RBI and currently sits 25 basis points above the repo rate. On 1 October 2026 the repo rate is 5.25% and the bank rate 5.50%.

Leaving the interest out because the supplier never asked for it

The liability arises under the statute, not on a claim. Section 22 requires the accrued interest to be disclosed and Section 23 disallows it. Whether a provision is recognised in the books is an accounting judgement, but the disclosure and the tax audit reporting do not depend on a demand from the supplier.

Applying the rule to every Udyam-registered vendor

Only micro and small enterprises are suppliers for this purpose. Medium enterprises are outside, and traders registered on Udyam after July 2021 are registered for priority-sector lending only. Record the class and the activity from the certificate.

Frequently asked questions

What is the MSME interest rate on delayed payment in 2026?+

16.50% a year, compounded monthly. Section 16 of the MSMED Act 2006 sets the rate at three times the bank rate notified by the Reserve Bank of India, and the bank rate has been 5.50% since 5 December 2025 (unchanged as of 1 October 2026).

What is the MSME interest rate for FY 2025-26 and FY 2026-27?+

For FY 2025-26 it changed with the bank rate: 19.50% from 1 April 2025 (bank rate 6.50%), 18.75% from 9 April 2025 (6.25%), 17.25% from 6 June 2025 (5.75%) and 16.50% from 5 December 2025 (5.50%). For FY 2026-27 it has been 16.50% from 1 April 2026 up to 1 October 2026, the date this page was reviewed.

How is MSME interest calculated?+

By compounding monthly at three times the RBI bank rate from the day after the payment was due. Find the last day to pay — the agreed date, capped at 45 days from acceptance, or 15 days from acceptance where there is no written agreement. From the next day, charge one month’s interest at three times the bank rate divided by twelve, add it to the balance, and repeat for each month until payment. Days in a final broken month are charged proportionately.

Is the MSME payment limit 15 days or 45 days?+

Both, depending on the paperwork. With a written agreement the buyer must pay by the agreed date, which cannot be later than 45 days from acceptance. Without a written agreement the buyer must pay within 15 days of acceptance.

From which date does MSME interest start?+

From the appointed day — the day after 15 days from acceptance — where there is no written agreement, or from the day immediately after the agreed date where there is one.

Is interest paid to an MSME allowed as a deduction?+

No. Section 23 of the MSMED Act provides that interest payable or paid under the Act is not allowed as a deduction in computing income. It is reported in clause 22 of Form 3CD.

Does MSME interest apply to medium enterprises?+

No. Sections 15 and 16 protect a "supplier", which the Act defines as a micro or small enterprise. Medium enterprises are not covered by the delayed-payment provisions.

Can the buyer and supplier agree that no interest will be charged?+

Not effectively. Section 16 applies notwithstanding anything in any agreement between the buyer and the supplier, so a waiver clause does not remove the statutory liability.

Which bank rate applies if RBI changed it during the delay?+

The Act does not say. The careful approach is to compute each stretch of the delay at three times the bank rate in force during that stretch, carrying the compounded balance forward. Run the calculator once per stretch, using the closing balance of one as the opening amount of the next.

What must be disclosed in the financial statements?+

Section 22 requires a buyer whose accounts are audited to disclose the principal and interest remaining unpaid to suppliers at the year end, the interest paid under Section 16 with the amounts paid beyond the appointed day, the interest due for delays on amounts paid during the year, the interest accrued and unpaid at the year end, and the further interest due in later years. Schedule III to the Companies Act 2013 requires the same particulars in the notes.

Does this interest affect the Section 43B(h) disallowance?+

They are separate. Section 43B(h) of the Income-tax Act, 1961 defers the deduction for the purchase amount itself when it is unpaid beyond the Section 15 limit at the year end. Section 23 of the MSMED Act disallows the interest permanently. A late payment can trigger both.

Authoritative sources

Parliament

Micro, Small and Medium Enterprises Development Act, 2006 — Sections 2(b), 2(n), 15 and 16 — Defines the appointed day and the supplier, sets the 15-day and 45-day payment limits, and imposes compound interest with monthly rests at three times the bank rate.

Parliament

MSMED Act, 2006 — Sections 22 and 23 — Section 22 lists the particulars a buyer must disclose in its annual accounts; Section 23 bars any deduction for the interest in computing income.

RBI

Reserve Bank of India — Change in Bank Rate (5 December 2025) — Bank rate revised from 5.75% to 5.50% with immediate effect; unchanged at the August 2026 policy review.

MCA

Schedule III to the Companies Act, 2013 — Requires trade payables to be split between micro and small enterprises and others, with the MSMED Act particulars in the notes.

CBDT

Form 3CD, clause 22 — as substituted by CBDT Notification 23/2025 — Reports interest inadmissible under Section 23 of the MSMED Act and the amounts paid, and not paid, within the Section 15 time limit.

Always confirm against the latest version of the source. Regulations evolve and amendments are common.

Related calculators

MSME 43B(h) disallowance checker →MSME Udyam classification calculator →Debtors ageing analyzer →Schedule III mapping validator →Tax audit applicability checker →

Share this tool

Last reviewed: 2026-10-01 · For informational purposes only — not professional advice.