When a micro or small supplier must be paid
Under section 15 of the MSMED Act, 2006 a buyer must pay a micro or small supplier on or before the date agreed in writing, and that agreed period cannot exceed 45 days from the day of acceptance (or deemed acceptance) of the goods or services. Where there is no written agreement, the limit is 15 days from acceptance. Medium enterprises are not covered by sections 15 to 24. If you do not record acceptance separately, the tracker uses the invoice date, which is the conservative choice.
Interest under section 16
If the buyer pays late, section 16 makes it liable to pay compound interest with monthly rests at three times the Bank Rate notified by the Reserve Bank, from the day after the due date until payment, notwithstanding any agreement. The Bank Rate is 5.50% after the RBI policy of 5 August 2026, so the interest rate is 16.5% a year. Under section 23 this interest is not deductible in computing income. Section 22 requires the buyer to disclose principal and interest unpaid, interest paid and interest accrued in its annual statement of accounts; Schedule III to the Companies Act carries the same disclosure.
The tax add-back: s.37(2)(g) [43B(h)]
Under the Income-tax Act 2025, s.37(2)(g) [43B(h) of the 1961 Act] allows a sum payable to a micro or small enterprise beyond the section 15 time limit only in the tax year in which it is actually paid. In practice: an amount still owed at year end whose section 15 due date has passed is added back; an amount whose due date falls after year end is allowed for that year if it is paid by the due date, and added back if it is paid late. The tracker flags the second case as "pending" until the due date passes. Suppliers registered on Udyam only as traders are generally treated as outside section 15; mark them "none" if that is your position.
MSME-1 half-yearly return
Companies that buy from micro and small enterprises and have payments outstanding for more than 45 days from acceptance file Form MSME-1 with the Registrar for each half-year: April–September by 31 October and October–March by 30 April. The form revised from 15 July 2024 also asks for payments made within and after 45 days and amounts outstanding within 45 days; the summary table gives those totals, but not the TReDS split. The CSV export lists each invoice outstanding over 45 days at the half-year end with a blank reasons column for you to complete.
Sources: MSMED Act 2006 ss.15, 16, 22, 23 (indiacode.nic.in); MCA order on MSME-1 under s.405 Companies Act 2013 and the 2024 amended form (mca.gov.in); Income-tax Act 2025 s.37(2)(g) (incometaxindia.gov.in); RBI Monetary Policy Statement, 5 August 2026 (rbi.org.in). Checked 6 October 2026.
Common questions
Does the 45-day rule apply if the supplier gets an Udyam certificate after the invoice?
Protection depends on the supplier's status when the contract or supply is made. An invoice raised before the supplier registered is generally outside section 15. Keep the Udyam certificate date on file and classify each invoice by status on its date.
Is s.16 interest deductible for tax?
No. Section 23 of the MSMED Act says interest payable under section 16 is not allowed as a deduction in computing income. The principal itself is allowed under s.37(2)(g) [43B(h)] in the year of payment.
We pay medium enterprises late. Is there an add-back?
No. s.37(2)(g) [43B(h)] and sections 15–16 cover only micro and small enterprises. Medium enterprises are covered only by the Udyam registration framework, not the delayed-payment provisions.
Does a partial payment within the limit help?
Yes, for the part paid. The tracker treats each row's paid amount as paid on the paid date and the balance as still owed. If you paid in several tranches, split the invoice into one row per tranche.