Most small agencies chase 90-day payments with polite emails. The law has given them a stronger tool since 2024, and most have not registered to use it.
Under Section 43B(h) of the Income-tax Act (carried into the 2025 Act), a buyer can claim an expense owed to a registered micro or small enterprise as a deduction only in the year it is actually paid, unless it is paid within the time allowed by the MSMED Act — 15 days from acceptance, or up to 45 days where a written agreement says so. Pay a registered small agency on day 60 and the buyer's deduction slips into the next financial year; pay after the due date and interest at three times the RBI bank rate, compounded monthly, accrues under the MSMED Act regardless. The rule has applied since FY 2023-24 and large buyers' finance teams now track it — which is exactly why an agency with a Udyam registration number on its invoice gets moved up the payment queue. This guide covers who qualifies, how to register, what the invoice needs, and the collection routine. Facts checked 14 October 2026; the rule applies to micro and small enterprises, not medium, and only to suppliers of goods and services registered on Udyam.
Note the asymmetry: the deduction consequence falls on the buyer, so the buyer's auditor is the one asking "is this vendor an MSME and when did we pay them?" Your registration number on the invoice is what answers that question for them.
Services businesses qualify — the Act covers enterprises engaged in providing services. Update the registration if you cross a threshold; the classification follows the higher of the two criteria.
On the invoice: your Udyam number; the invoice date and the date of delivery or acceptance; the credit period and the due date computed from it; a line stating that interest under Section 16 of the MSMED Act applies to late payment. In the agreement — the signed SOW, or the accepted quote that became the invoice — the credit period in days, not exceeding 45. If a client's standard terms say 60 or 90 days, the law caps the enforceable period at 45 for a registered micro or small supplier; say so politely when you countersign, and put 45 in your quote.
Milestone and retainer billing work the same way per invoice; see retainers for structuring the billing so each invoice is a clean, accepted deliverable.
| Day 0 | Deliver with a dated handover note; invoice the same day with the due date shown. |
|---|---|
| Day 15 | Confirm no written objection has been raised — the deliverable is accepted. |
| Day 35 | Friendly reminder: due date in 10 days, Udyam number restated. |
| Day 46 | Formal notice: overdue; interest under Section 16 accruing from day 46; note that the buyer's deduction under 43B(h) now depends on the payment date. |
| Day 60 | Invoice the interest to date. Decide whether to escalate to MSME Samadhaan (the online delayed-payment facilitation council process) — usually the threat suffices. |
Most agencies never send the day-46 notice because they fear the relationship. The clients who matter already know the rule — their finance team is tracking it — and a vendor who knows it too is treated as a business, not a favour.
It does not apply if you are a medium enterprise or unregistered; it does not help with disputed deliverables (a written objection within 15 days stops the clock until resolved); it does not apply to traders in the same way; and it does not make a bad client pay — it makes a good client's finance team prioritise you. Keep the task log that proves delivery, because "we never accepted it" is the only defence a buyer has.
| Rule | Section 43B(h), Income-tax Act; Sections 15–16, MSMED Act, 2006 |
|---|---|
| Applies to | Registered micro and small enterprises (not medium); goods and services |
| Payment time | 15 days without an agreement; up to 45 days with one; counted from acceptance |
| Buyer's consequence | Expense deductible only on payment if paid late |
| Interest | Three times the RBI bank rate, compounded monthly, from the due date |
| Micro / small limits (2025) | Investment ≤ ₹2.5 cr / ₹25 cr; turnover ≤ ₹10 cr / ₹100 cr |
| Registration | Udyam portal, free, Aadhaar + PAN |
| Escalation | MSME Samadhaan delayed-payment portal |
Under Section 15 of the MSMED Act a buyer must pay a registered micro or small enterprise within the agreed credit period, which cannot exceed 45 days from acceptance, or within 15 days if there is no written agreement. Section 43B(h) of the Income-tax Act, applicable from FY 2023-24, allows the buyer to deduct the expense only when paid if that time limit is missed.
Yes. The MSMED Act covers enterprises providing services as well as manufacturing, and a registered micro or small services enterprise is protected in the same way. Registration on the Udyam portal is required; without it the rule does not apply.
On the government's Udyam registration portal, free of charge, using the Aadhaar of the proprietor, partner or director and the business PAN. The classification as micro or small is self-declared from investment and turnover and verified against tax data; the certificate issues immediately.
Section 16 of the MSMED Act provides for compound interest with monthly rests at three times the bank rate notified by the RBI, from the day after the due date. The interest is not a deductible expense for the buyer. You may choose to waive it, but it accrues by law.
For a registered micro or small supplier the enforceable maximum is 45 days from acceptance regardless of what the client's standard terms say. Agreeing a longer period in writing does not extend the statutory limit.
The online portal where a micro or small enterprise can file a delayed-payment reference against a buyer, which is taken up by the Micro and Small Enterprises Facilitation Council for the state. It is the formal escalation after notices; in practice the notice citing it is usually sufficient.
Merik's client workflow gives the rule its evidence. Each client has projects; each project has quotes that convert to invoices as one record in two states, so the accepted quote is the written agreement stating the credit period, and the invoice carries the dates. The daily task log — client, project, time, status, proof links — is the delivery record that establishes acceptance when a buyer claims otherwise. Per-client and per-project rollups show what is outstanding and for how long.
Merik does not compute MSMED interest, file Samadhaan references or chase payments; the routine above is yours to run. See the clients, quotes and invoices module.
Free, set up for you, every module included — see what the free workspace includes
From line-item quote to sent invoice without retyping anything.
Estimate vs logged hours per project, weekly, turned into a change request in time.
Stop guessing the monthly number — derive it from logged hours.
Request your free company workspace and bring employees, attendance, leave, payroll and tasks together.