The MSME 45-day payment rule: a manufacturer's guide for 2026

The MSME 45-day payment rule says that if you owe money to a micro or small enterprise and don't pay it within the time allowed by the MSMED Act, you can't deduct that expense in the year you booked it. The time allowed is 15 days from acceptance of the goods or services if there's no written agreement, or the agreed credit period, up to a maximum of 45 days, if there is one. The rule came in as Section 43B(h) of the Income-tax Act, 1961, from FY 2023-24, and carries into the Income-tax Act, 2025, which applies from 1 April 2026.

Manufacturers buy from hundreds of small suppliers, so this turns a payables habit into a tax line. Here's how the rule works, with worked examples, and a routine to stay on the right side of it.

Who does the 45-day rule apply to?

It applies to amounts you owe suppliers who are:

• Registered on the Udyam portal as a micro or small enterprise. Medium enterprises are not covered.
• Manufacturers or service providers. Traders registered on Udyam don't get the benefit of the delayed-payment provisions.

The size thresholds were revised from 1 April 2025:

The revision moved many suppliers that used to be medium into the small category, so your list of covered vendors has probably grown. Collect each supplier's Udyam certificate and record its category against the vendor.

How is the due date calculated?

The clock starts on the day of acceptance (or deemed acceptance) of the goods or services, which may differ from the invoice date. Then:

• With no written agreement, you have 15 days.
• With a written agreement, you have the agreed period, capped at 45 days. A 60- or 90-day term in the contract does not extend it.

Worked examples for FY 2025-26 (year ending 31 March 2026)

The disallowed amount is added back to taxable income for the year, and you get the deduction later, in the year you actually pay. On ₹50 lakh of overdue MSE payables at year-end and a tax rate of about 25%, that's roughly ₹12.5 lakh of tax paid a year early: cash that could have been working capital.

What else applies besides the tax rule?

• Interest under the MSMED Act. Late payment to a micro or small enterprise attracts compound interest, with monthly rests, at three times the bank rate notified by the RBI. That interest is not tax-deductible.
• MSME Form I. Companies with dues to micro and small suppliers outstanding beyond 45 days must file a half-yearly return with the MCA. The return for April to September is due by 31 October.
• MSME Samadhaan. Suppliers can file delayed-payment cases on the government portal, which go to the Micro and Small Enterprises Facilitation Council.
• Tax audit disclosure. The tax audit report asks for amounts that are inadmissible under this rule, so auditors will look at how long your MSE payables have been outstanding.

A payables routine that keeps you compliant

1. Tag MSE vendors. Record the Udyam number and category for every vendor, and re-check them each year, since categories change.
2. Put credit terms in writing. Without a written agreement you get 15 days. A signed term of up to 45 days triples your room.
3. Give every bill a due date. Book purchase bills when goods are accepted, with the payment term applied, so each bill carries its due date.
4. Review weekly by due date. Pay MSE bills on time first. Medium and non-MSME suppliers leave you more room.
5. Do a March sweep. In the last two weeks of March, list every MSE bill past its due date and clear it before 31 March.
6. Book bills promptly. A bill that sits in a drawer for three weeks has already used most of its 45 days.

The 45-day rule doesn't punish being slow. It punishes not knowing which bills are slow.

The other side: when you're the MSE supplier

Many manufacturers are micro or small enterprises themselves. If you are, the rule works for you: your larger customers can't deduct what they owe you once it's more than 45 days overdue at year-end. Put your Udyam number on invoices and quotes, state your credit terms in writing, and follow up overdue invoices with that in mind.

Where Dravyaa fits

In Dravyaa, every purchase bill carries a payment term and a due date, so you can sort what you owe by date and pay MSE suppliers first. Bills are booked against goods receipts, which records when goods were accepted. On the sales side, invoices carry due dates and overdue invoices are flagged to your team daily, which helps you collect within the 45 days you're owed. See also Tally vs manufacturing ERP.