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MSME Delayed Payment Interest Calculator
Calculate the statutory compound interest payable to Micro & Small Enterprise suppliers under Section 16 of the MSMED Act 2006 and Section 43B(h) of the Income Tax Act.
Legal Provisions: Section 43B(h) & MSMED Act 2006
Under Indian law, payments to registered Micro and Small enterprises must be cleared within strict timelines:
Credit Period Limit: Maximum 45 days if written agreement exists, or 15 days if no agreement exists.
Mandatory Penal Interest: Section 16 of MSMED Act mandates compound interest with monthly rests at 3 times the RBI Bank Rate (e.g., 3 × 6.75% = 20.25% p.a.).
Income Tax Penalty (Section 43B(h)): If buyers do not settle overdue MSME dues before the financial year end, the entire purchase expense is disallowed from tax deductions and taxed at full corporate rate.
No Tax Deduction for Interest: Interest paid under MSMED Act is non-deductible as business expenditure.
Formula
Applicable Rate = 3 × Current RBI Bank Rate (e.g., 3 × 6.75% = 20.25% p.a.) Monthly Compounded Amount = Principal × (1 + Rate / 12)^(Days Overdue / 30) Interest Due = Monthly Compounded Amount − Principal
Frequently Asked Questions
No, Section 43B(h) and MSMED Act Section 15 only apply to Micro and Small enterprises engaged in manufacturing or services. Wholesale/retail traders and Medium enterprises are exempt from 43B(h).
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The buyer must pay compound interest at 3x RBI bank rate with monthly rests, and cannot claim this interest as a tax deduction. If unpaid by March 31, the entire purchase expense is added back to taxable income.
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The RBI Bank Rate currently sits at 6.75%, making the statutory MSME penal interest rate 20.25% per annum.