MSME 45-Day Payment Rule: Complete Guide for India

The Micro, Small and Medium Enterprise (MSME) sector is the backbone of India's economy, with substantial contributions to employment as well as production. Their growth prospects, though, have long suffered due to delayed payments. To address this issue, the Government of India has implemented stricter provisions for making payments to MSMEs within a specified time limit. The MSME 45-day payment rule brought in under the MSMED Act, 2006 and strengthened by the Finance Act, 2023, now compels businesses buying goods and services from an MSME to pay promptly.

Understanding the MSME 45-Day Payment Rule

The MSME 45-day payment rule was brought in to secure good cash flow for smaller businesses. According to this rule:

• Buyers need to pay the registered MSME payment within 45 days of notification.
• If there is a written agreement, the payment term cannot be over 45 days.
• It covers buyers in all industries, regardless of the business size

Ultimately, the goal is to safeguard MSME liquidity, bolster supply chains and promote fairer trading practices.

Scope and Applicability of MSME 45-Day Payment Rule

The rule will apply to all the buyers who trade with MSMEs enrolled on the Udyam portal, the official recognition portal of the Government of India. MSMEs that have not registered themselves are out of scope for these advantages.

Whether the buyer is a large corporation or an informal trader, the compliance requirement applies uniformly once the transaction is with a registered MSME.

Enterprise Types and Updated Investment–Turnover Limits (as per Budget 2025–26)

Registered vs Unregistered Buyers: Who Must Comply?

The rule clearly states that buyer obligations exist irrespective of their registration status. Even if a buyer is not GST-registered or formally incorporated, they must make timely payments when dealing with registered MSMEs.

Legal Framework and Section 43B(h) Explained

The Finance Act, 2023, introduced Section 43B(h) to strengthen enforcement. It directly links taxation to MSME payment timelines.

Key points include:

• MSME payment within 45 days of notification.
• If not, the buyer cannot claim these expenses as tax deductions until the amount is paid.
• This disincentivises delaying payments since it directly impacts taxable income.

This provision ensures that businesses are legally and financially compelled to prioritise timely settlements.

Penalties and Consequences for Non-Compliance

• Compound Interest: Buyers become liable to pay interest at three times the RBI bank rate.
• Tax Disallowance: Unpaid MSME dues beyond 45 days increase taxable profits.
• Dispute Resolution: MSMEs can file complaints through the MSME Samadhaan portal, backed by the Facilitation Council.

Also Read: What Are Foreclosure Charges on Business Loans?

Benefits of the MSME 45-Day Payment Rule

This reform benefits both stakeholders. For MSMEs, it ensures survival and growth; for buyers, it improves compliance transparency.

• Improved cash flow for MSMEs.
• Enhanced ability to avail credit facilities.
• Reduced risk of insolvency or financial distress.
• Promotes fair trade practices in commercial ecosystems.
• Encourages buyers to foster long-term, trustworthy relationships with MSMEs.

Challenges in MSME Payment Compliance

While impactful, the rule faces certain challenges in execution:

• Lack of awareness among small traders.
• Difficulty in monitoring and enforcing buyer compliance.
• Complexity and time taken in legal dispute resolutions.
• Potential strain on buyer-supplier relations in industries with longer working capital cycles.

How Businesses Can Ensure Compliance with the MSME 45-Day Payment Rule?

Steps to Comply

1. Verify the vendor’s Udyam registration status.
2. Mention clear payment terms in contracts upfront.
3. Maintain an internal payment monitoring system.
4. Ensure timely dispute resolution to avoid prolonged cycles.
5. Conduct internal compliance audits.
6. Train staff involved in procurement and finance.

Role of Technology in Monitoring Payments

Digital tools such as ERP systems, automated accounting software and e-invoicing solutions allow businesses to track invoices and due dates efficiently. Payment reminders, alerts and dashboards provide real-time visibility, helping enterprises avoid inadvertent lapses.

MSME Samadhaan Portal and Grievance Redressal Mechanism

The MSME Samadhaan Portal is a government initiative to resolve grievances related to delayed payments. MSMEs can file complaints online, after which cases are escalated to the Micro and Small Enterprise Facilitation Council. This mechanism enables government-backed intervention, improving the chances of dispute resolution without costly judicial intervention.

Impact of the Rule on Small Businesses and Corporates

• For MSMEs: Boosts working capital, facilitates growth and reduces reliance on external funding.
• For Buyers: Ensures tax compliance under Section 43B(h) and strengthens supply chain trust.
• Sector Challenges: In industries such as manufacturing and construction, where receivable cycles are inherently long, buyers may find compliance challenging. However, digital tools and financing options can ease the pressure.

Also Read: How to Plan Out Your Business Loan Repayments

Using Business Loans to Mitigate Payment Delays

Despite the regulation, MSMEs may experience delays in receiving payments. To bridge such gaps, a Business Loan can be an effective solution.

Why Godrej Capital Business Loan?

Godrej Capital enables entrepreneurs with trustworthy and flexible financial tools, which includes :

• Design Your EMI: Empowers business with the flexibility to manage repayment timelines, timing EMIs with real cash flows for added convenience.
• Fast Digital Sanction: Swift approvals allow MSMEs to grasp growth opportunities without delay.
• Convenient Customer Service: Seamless assistance allows entrepreneurs to concentrate on business without administrative hassles.
• Trust of Godrej Legacy: With over 127 years of credibility, customers can be assured of safe handling of documents and ethical service.
• Rewards for Timely Repayments: Encourages responsible financial behavior while offering additional incentives.

By choosing Godrej Capital, MSMEs gain not only financial stability but also a trusted growth partner in their journey.

Also Read: MSME Small Business Loan for Women Entrepreneurs

Final Thoughts:

The MSME 45-day payment rule is a significant step towards having robust and financially healthy enterprises in India. While there are challenges, the mechanism of compliance, digital monitoring and grievance redressal systems make the growth framework transparent. With a Business Loan from Godrej Capital for MSMEs retaining payment clearances, flexible financing support helps them continue growing. With government reforms and stable financial partners, India's MSME ecosystem has the potential to unlock unlimited potential.

Apply now for a MSME Business Loan

FAQs

Q.1. What is the timeline for payments under the MSME 45-day rule?

A. Payment is due within 15 days, unless a contract is in place, in which case it is due within 45 days.

Q.2. Who is liable to comply with the MSME 45-day rule?

A. All buyers procuring from registered MSMEs must comply, regardless of their own registration or size.

Q.3. What happens if payment is delayed beyond 45 days?

A. The buyer is required to pay compound interest and cannot deduct the expense as a tax deduction until it is paid.

Q.4. How does Section 43B(h) impact tax deductions?

A. If the payments are not settled within 45 days, they won't be permitted as deductions when calculating taxable income. Payments made after the due date can be deducted in the year of actual payment.

Q.5. How can MSMEs lodge a complaint against delayed payment?

A. MSMEs can file online complaints on the MSME Samadhaan portal, which will be considered by a Facilitation Council.

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