A customer who pays 90 days late is borrowing from you at zero interest — unless you charge it. Indian law gives micro and small enterprises an unusually strong lever: under the MSMED Act, a buyer who pays a registered MSME supplier after the agreed period (maximum 45 days) owes compound interest at three times the RBI bank rate, and cannot deduct the interest as a business expense. This calculator computes that interest, or simple interest at your contract rate, for any invoice and any delay, so your reminder letter carries an exact figure.
The MSMED Act formula
- Due date: the date agreed in writing, capped at 45 days from acceptance (or deemed acceptance) of goods or services; 15 days if there is no written agreement.
- Rate: three times the RBI bank rate, currently 5.5% → 16.5% per annum, compounded monthly.
- Who can claim: suppliers registered as micro or small enterprises on Udyam at the time of supply; medium enterprises are not covered.
- Buyer's side: the interest is not deductible for income tax, and Section 43B(h) also disallows the principal expense until it is actually paid if the payment is late. Companies must disclose outstanding MSME dues in their accounts.
Recovery goes through the MSME Samadhaan portal to the state Facilitation Council, which can order payment with interest; the process and the new deemed-acceptance rules are explained in Section 43B(h): the 45-day payment rule and The new MSME definition: 7 benefits.
How to use the calculator
- Enter the invoice (or overdue) amount.
- Enter the due date — the agreed date, or 45 days from delivery — and the payment date (or today).
- Choose MSMED Act (3× bank rate, monthly compounding; edit the bank rate if it changes) or contract rate (simple interest at the rate on your invoice or agreement, e.g. 18% or 24%).
- Read the days overdue, the interest, and the total payable; copy the breakdown into your reminder or a debit note.
- For several invoices, run each and total — or use the CSV export.
Worked example
Invoice ₹2,50,000, due 1 July 2026, paid 20 September 2026 (81 days late). MSMED interest at 16.5% compounded monthly ≈ ₹9,350. At an 18% simple contract rate: 2,50,000 × 18% × 81 ÷ 365 ≈ ₹9,990. Either way, roughly ₹10,000 the buyer was silently borrowing.
Charging interest in practice
- Print the term on every GST invoice and purchase order: "Interest at 18% p.a. on overdue amounts; MSMED Act applies."
- GST on interest: interest for delayed payment is part of the value of supply and attracts GST at the rate of the underlying goods or services, payable when received; raise a debit note for it.
- Section 138 cheques: if the customer's cheque bounced, the notice-and-complaint clock runs in parallel; see Cheque bounce: what to do.
- Big buyers now watch 43B(h) closely; a polite reminder citing the section moves invoices up the queue.
- Count the days with the business days calculator when the contract specifies working days — the Act itself uses calendar days.
Other uses
- GST and income tax dues: interest is 18% simple (GST) or 1% per month (income tax); use contract mode.
- Loan or rent arrears: enter the agreed rate.
- Society maintenance arrears: most bye-laws allow up to 21% simple; the society maintenance invoice tool applies it.
Related tools
- Debit note generator — bill the interest with GST.
- GST invoice generator — print payment terms and interest clauses.
- Purchase order — agree the credit period in writing.
- Business days calculator — count the window.
The MSMED Act was amended in August 2026 — compulsory TReDS settlement by public sector buyers, fixed Facilitation Council timelines and graded penalties: The MSMED Amendment Act is law.
- EMI calculator — compare with the cost of borrowing.