Section 15 & 16 MSMED Act, 2006•3× RBI Bank Rate (20.25% p.a. Monthly Rests)•Sec 43B(h) Tax Impact

Calculate the Interest Your Buyer Owes Under the MSMED Act

Under Section 16 of the MSMED Act, 2006, any buyer delaying payment to a Udyam-registered Micro or Small enterprise beyond 15 days (or up to 45 days with a written agreement under Section 15) must pay compound interest with monthly rests at 3× the RBI Bank Rate (currently 20.25% p.a.) from the Appointed Day.

Section 15 Credit Cap15 / 45 Days Max

Section 16 Penal Rate3× RBI Bank Rate

Compounding RuleMonthly Rests

Buyer Tax DisallowanceSec 43B(h) & Sec 23

Section 15 & 16 MSMED Act, 2006•3× RBI Bank Rate (Monthly Rests)

MSME Delayed Payment Compound Interest Split Calculator

Compute your Appointed Day, month-by-month compounded interest schedule, and buyer Section 43B(h) tax disallowance exposure.

1Invoice Principal & Delivery / Acceptance Dates

Unpaid Invoice Amount (₹ — Inclusive of GST)

₹

Enter the unpaid invoice balance owed by the buyer.

Invoice / Goods Acceptance DateDate of delivery or deemed acceptance under Sec 2(b)

Actual or Target Payment DateDate buyer paid or date of your legal demand notice

2Section 15 Credit Period & Udyam Registration Tier

Written Credit Agreement in PO / Contract?Without a written agreement, Sec 15 fixes credit at 15 days.

Agreed Credit Days (PO / Invoice Terms)Statutory credit period applied: 45 days

Supplier Udyam Registration Classification (At Time of Contract)

3RBI Bank Rate & Buyer Section 43B(h) Tax Slab

RBI Bank Rate (% p.a.)Verify on RBI.org.in ↗

Default 6.75% (RBI Bank Rate as of Nov 2026) → 3× = 20.25% p.a.

Buyer Corporate Income Tax SlabUsed to preview Buyer's Section 43B(h) tax disallowance hit

Total Statutory Claim (Principal + Sec 16 Interest)20.25% p.a. Monthly Compounded

₹5,35,504

Principal Due₹5,00,000

3× Compound Interest+₹35,504

Appointed Day16 Jun 2026

Sec 15 Due Date15 Jun 2026(45 days credit)

Overdue Duration125 Days(5 monthly rests)

Monthly Rest Rate1.6875% / mo(20.25% ÷ 12)

Compound Bonus+₹829vs simple interest

⚡ Buyer CFO Leverage: Sec 43B(h) + Sec 23 Tax Penalty+₹1,25,850 Tax Hit

1) Under Section 43B(h) of the Income-tax Act, 1961, if your buyer fails to pay this invoice within 45 days across the financial year-end, the entire ₹5,00,000 expense is disallowed—forcing the buyer to pay ₹1,25,850 in extra corporate income tax (@ 25.17%). 2) Under Section 23 of the MSMED Act, the ₹35,504 compound interest is permanently non-deductible as a tax expense.

Month-by-Month Compounding Schedule (Section 16)

5 rest periods

Rest #	Compounding Period	Opening (₹)	Interest (₹)	Closing (₹)
M1	16 Jun 2026 – 15 Jul 2026	₹5,00,000	+₹8,438	₹5,08,438
M2	16 Jul 2026 – 15 Aug 2026	₹5,08,438	+₹8,580	₹5,17,017
M3	16 Aug 2026 – 15 Sept 2026	₹5,17,017	+₹8,725	₹5,25,742
M4	16 Sept 2026 – 15 Oct 2026	₹5,25,742	+₹8,872	₹5,34,614
M5	16 Oct 2026 – 18 Oct 2026 (3d stub)	₹5,34,614	+₹890	₹5,35,504

Attaches Sec 16 schedule + Sec 43B(h) CFO tax warningSamadhaan vs Notice →

Statutory Formula & Legal Basis•Sections 2(b), 15 & 16 MSMED Act, 2006

How MSME Delayed Payment Interest Is Calculated Under Section 16 (and in Excel)

Unlike regular commercial contracts where interest is calculated on a simple annual basis, Section 16 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 mandates compound interest with monthly restsat three times the Bank Rate notified by the Reserve Bank of India. Every month that an invoice remains unpaid after the statutory credit period, the accrued monthly interest is added to the unpaid invoice balance, and the next month's interest is computed on that higher compounded principal.

Section 16 Monthly Compounding Formula

Compounded Balance after M full months = Principal × (1 + (3 × RBI_Bank_Rate) / 12)^M
Stub Period Interest (for remaining D days) = Closing_Balance × (3 × RBI_Bank_Rate) × (D / 365)
Total Section 16 Interest = (Compounded Balance + Stub Period Interest) − Principal

How to do MSME interest calculation in Excel: In a spreadsheet where cell B1 is the Invoice Principal (e.g., 500000), B2 is the annual RBI Bank Rate (0.0675), and B3 is the number of completed overdue months, enter =FV((3*B2)/12, B3, 0, -B1) - B1 to get the exact compounded interest for full monthly rests. You can also click Download Claim CSV in the calculator above to export a pre-built month-by-month ledger ready for Excel or Tally verification.

Step 1: Fixing the “Appointed Day” (Section 15)

Under Section 15, if you have no written credit period in your Purchase Order or invoice, the buyer must pay within 15 days of delivery or deemed acceptance. If a written agreement exists, the credit period is capped at 45 days maximum. The day immediately following the expiry of this 15-day or 45-day window is the statutory Appointed Day under Section 2(b), from which 3× compound interest begins running automatically.

Step 2: 15-Day Objection Cutoff (Explanation to Sec 2(b))

Buyers frequently try to defeat MSME interest claims by raising belated quality complaints months after delivery. Under the Explanation to Section 2(b), if a buyer does not raise a written objection regarding defects in goods or services within 15 days from the date of delivery, the goods or services are legally deemed accepted on the actual delivery date.

Statutory Reference Matrix•MSMED Act 2006 & Income-tax Act 1961

Statutory Deadlines, Interest Rules & Buyer Tax Penalties at a Glance

When drafting a demand notice or filing a claim on the MSME ODR / Samadhaan portal, cite these six interrelated statutory provisions together. Combining Section 16 compound interest with Section 43B(h) corporate tax disallowance creates immediate financial pressure on the buyer's CFO and statutory auditors.

Statutory Provision	Legal Mandate / Threshold	Consequence for Defaulting Buyer
Section 15, MSMED Act	15 days (no written agreement) or max 45 days (with written agreement)	Any PO clause stipulating 60, 90, or 120 days credit is statutorily clipped to 45 days.
Section 16, MSMED Act	3× RBI Bank Rate (3 × 6.75% = 20.25% p.a.) with monthly rests	Overrides lower contractual interest rates or “no-interest” vendor clauses.
Section 18, MSMED Act	MSEFC / MSME ODR Portal Conciliation & Binding Arbitration	Supplier files in its own state MSEFC; under Section 19, buyer must pre-deposit 75% of the award to challenge it in court.
Section 22, MSMED Act & MCA Form MSME-1	Mandatory disclosure in audited annual financial statements	Buyer's statutory auditor must report unpaid MSME principal and accrued Section 16 interest in the balance sheet notes and MCA half-yearly return.
Section 23, MSMED Act	Permanent disallowance of penal interest under Income-tax Act	The 20.25% compound interest paid or payable by the buyer can never be claimed as a business expense deduction.
Section 43B(h), Income-tax Act, 1961	Deduction allowed only on actual payment within Sec 15 timeline	Unpaid Micro/Small invoices crossing March 31 beyond 15/45 days are added back to buyer's taxable profit, triggering 25.17%–34.94% income tax outflow.

Step-by-Step Numerical Walkthrough•4 Monthly Rests + 3-Day Stub

Worked Example: Compounding a ₹5,00,000 Overdue MSME Invoice

Suppose Apex Precision Components (Udyam Small Enterprise, Pune) delivers CNC-machined valves worth ₹5,00,000 (inclusive of GST) to an industrial buyer on 1 May 2026. The buyer's Purchase Order mentions a 90-day credit period. The buyer fails to pay until 18 October 2026. Here is how Section 15 and Section 16 apply:

1. Statutory Credit Cap

Although the PO says 90 days, Section 15 caps written credit at 45 days. Counting 45 days from 1 May 2026 fixes the Due Date on 15 June 2026 and the Appointed Day on 16 June 2026.

2. Effective Monthly Rate

With the RBI Bank Rate at 6.75% p.a., the Section 16 rate is 3 × 6.75% = 20.25% p.a. Divided by 12 monthly rests, each full month compounds at exactly 1.6875%.

3. Overdue Span (125 Days)

From 15 June 2026 to 18 October 2026 is 4 full calendar months (ending 15 Oct 2026) plus a 3-day stub period (16 Oct to 18 Oct 2026).

Rest Period	Date Range	Opening Balance	Calculation (@ 20.25% p.a.)	Interest	Closing Balance
Month 1	16 Jun – 15 Jul 2026	₹5,00,000.00	₹5,00,000 × 1.6875%	+₹8,437.50	₹5,08,437.50
Month 2	16 Jul – 15 Aug 2026	₹5,08,437.50	₹5,08,437.50 × 1.6875%	+₹8,579.88	₹5,17,017.38
Month 3	16 Aug – 15 Sep 2026	₹5,17,017.38	₹5,17,017.38 × 1.6875%	+₹8,724.67	₹5,25,742.05
Month 4	16 Sep – 15 Oct 2026	₹5,25,742.05	₹5,25,742.05 × 1.6875%	+₹8,871.90	₹5,34,613.95
Stub (3d)	16 Oct – 18 Oct 2026	₹5,34,613.95	₹5,34,613.95 × 20.25% × (3/365)	+₹889.81	₹5,35,503.76
Total Statutory Claim Payable on 18 October 2026				+₹35,503.76	₹5,35,503.76

Statutory Recovery Architecture•From Invoice Delivery to MSEFC Award

How an Overdue MSME Invoice Escalates From Appointed Day to Recovery

The diagram below maps the statutory timeline from invoice delivery through the Section 15 credit cap, automatic Section 16 monthly compounding, pre-litigation advocate legal notice citing Section 43B(h), and online reference on the MSME ODR / MSEFC portal.

Figure 1: Five-stage statutory lifecycle of an overdue Micro or Small Enterprise invoice under Chapter V of the MSMED Act, 2006.

Statutory Boundaries & Assumptions•Chapter V MSMED Act

Assumptions, Statutory Eligibility & Legal Limits of This Calculator

Before serving a formal demand notice or filing a reference before the Micro and Small Enterprises Facilitation Council (MSEFC), verify that your invoice meets these five statutory conditions:

1.
Prior Udyam Registration Required for MSEFC Jurisdiction: Per the Supreme Court's ruling in M/s Silpi Industries v. KSRTC, a supplier must hold a valid Udyam Registration (as a Micro or Small enterprise) at the time of entering into the contract or supplying the goods/services to invoke Section 18 MSEFC arbitration. However, since the 2021 Ministry of MSME Office Memorandum included wholesale and retail traders (NIC Codes 45, 46, and 47) exclusively for Priority Sector Lending, pure traders without manufacturing or service activity cannot file Section 18 MSEFC claims.
2.
Medium Enterprises Excluded From Section 16 & Section 43B(h):Section 2(n) defines a “supplier” strictly as a Micro Enterprise (investment ≤ ₹1 Cr, turnover ≤ ₹5 Cr) or Small Enterprise (investment ≤ ₹10 Cr, turnover ≤ ₹50 Cr). Medium Enterprises are not covered by Section 16 compound interest or Section 43B(h) tax disallowance.
3.
RBI Bank Rate Fluctuations Over Multi-Year Delays: This calculator applies the user-selected RBI Bank Rate (defaulting to 6.75% p.a. as of November 2026) across the overdue period. If your dispute spans multiple years during which the RBI Monetary Policy Committee revised the Bank Rate (Marginal Standing Facility rate), MSEFC arbitrators may compute interest using the rate prevailing during each respective period.
4.
Timely Written Objection by Buyer (Section 2(b)):If the buyer raised a bona fide written objection specifying quality defects or short delivery within 15 days of delivery, the “day of acceptance” shifts to the date on which the supplier removes those defects.
5.
Calendar-Month Rests + 365-Day Stub Convention: Full months of delay are compounded at (3 × Bank Rate) / 12 per monthly rest, while any partial month stub at the end of the period is computed pro-rata on a Days / 365 basis.

✓ What LegalRecovery Can Do For Your MSME Claim

• Draft and serve a formal advocate legal demand notice attaching your Section 16 month-by-month compound interest schedule.
• Put the buyer's Directors, CFO, and Company Secretary on formal notice of Section 43B(h) corporate tax disallowance and Section 22 audit disclosure obligations.
• Provide postal barcode tracking (Registered Speed Post) and Section 63 BSA electronic service records required as pre-filing proof on the MSME ODR / Samadhaan portal.

✕ What This Calculator & Notice Cannot Do

• This tool is a statutory arithmetic calculator and does not constitute an MSEFC arbitral award or formal tax audit opinion.
• A legal demand notice cannot freeze a buyer's bank account on its own; coercive attachment requires an MSEFC arbitral award executed as a civil court decree under Section 36 of the Arbitration Act.

Binding Judicial Precedents•Supreme Court of India

Supreme Court Precedents on Section 16 Compound Interest & MSEFC Jurisdiction

Corporate buyers frequently argue that a private arbitration clause in their Purchase Order bars the supplier from approaching the MSEFC, or that contractual interest overrides Section 16. The Supreme Court of India has settled both questions in favour of MSME suppliers:

Supreme Court • (2023) 6 SCC 401

Gujarat State Civil Supplies Corp. Ltd. v. Mahakali Foods Pvt. Ltd.

Held that Chapter V (Sections 15 to 23) of the MSMED Act, 2006 is a special statutory regime that overrides the Arbitration and Conciliation Act, 1996. Even if a buyer's Purchase Order contains an exclusive private arbitration clause or foreign seat, the MSME supplier can still invoke statutory MSEFC conciliation and arbitration under Section 18 and claim 3× compound interest under Section 16.

Ratio: Section 24 overrides private PO arbitration clauses

Supreme Court • (2021) 18 SCC 790

M/s Silpi Industries v. Kerala State Road Transport Corporation

Clarified two critical rules: first, the Limitation Act, 1963 applies to Section 18 MSEFC arbitrations (3 years from the Appointed Day or last part-payment); second, to avail the beneficial jurisdiction of the MSEFC under Section 18, the supplier must have held Udyam / EM-II registration prior to entering into the contract and supplying the goods or services.

Ratio: Prior Udyam registration & 3-year limitation

Supreme Court • (2010) 5 SCC 44

Modern Industries v. Steel Authority of India Ltd. (SAIL)

Affirmed that the statutory obligation to pay compound interest with monthly rests at three times the RBI Bank Rate is mandatory and cannot be contracted out of by a dominant PSU or corporate buyer. Also confirmed that a supplier can pursue an independent claim for statutory delayed-payment interest even where the buyer belatedly released only the principal invoice amount.

Ratio: Interest-only claim valid after late principal payment

Action Plan•From Calculation to Bank Credit

What to Do With Your Interest Calculation: Demand Notice to MSME ODR

Once you have computed your Section 16 compound interest and downloaded the CSV claim schedule above, execute this three-step recovery sequence:

Step 1: Assemble Your Delivery & Acceptance DossierCompile the GST tax invoice, Purchase Order (or email confirmation), e-Way Bill, signed delivery challan / Lorry Receipt (LR) or client email acknowledging service milestones, your Udyam Registration Certificate, and the downloaded Section 16 CSV calculation sheet.
Step 2: Serve a 15-Day Advocate Legal Notice on the Buyer & CFOBefore lodging a formal MSEFC case, serve an advocate demand notice on the buyer company's Registered Office, Managing Director, and CFO. Explicitly cite Section 16 (20.25% monthly compound interest), Section 22 (mandatory statutory auditor disclosure in financial statements), and Section 43B(h) of the Income-tax Act. Read our detailed comparison in MSME Samadhaan vs. Advocate Legal Notice to see why most solvent corporate buyers settle during the 15-day notice window to avoid audit qualifications and tax disallowance.
Step 3: File an Online Reference on the MSME ODR / Samadhaan PortalIf the buyer fails to clear the dues within 15 days of receiving your legal notice, upload your invoice, delivery proof, Udyam certificate, and the served Legal Notice + Speed Post tracking receipt on the official MSME Samadhaan / ODR portal under Section 18.

Related B2B & Commercial Payment Recovery Guides

MSME Samadhaan vs. Legal Notice Recovery Guide→MSME ODR Portal: File a Delayed Payment Case→MSMED Amendment Act 2026: Supplier Rights→Delayed Payment Interest Under MSMED Act Explained→B2B Unpaid Invoice & Business Dues Recovery→Send an Advocate Legal Notice Online in India→

Statutory B2B Recovery • Section 16 MSMED Act & Section 43B(h) Income-tax Act

Turn Your Compound Interest Schedule Into an Enforceable Advocate Demand Notice

Corporate buyers and CFOs rarely release held-up invoice payments on informal reminders alone. Have a verified commercial recovery advocate serve a formal statutory notice on the buyer's Directors and Company Secretary via Registered Speed Post and Section 63 BSA electronic delivery—putting them on notice of mandatory 20.25% monthly-compounded interest under Section 16, non-deductibility of interest under Section 23, and full invoice disallowance under Section 43B(h) of the Income-tax Act prior to MSEFC / MSME ODR filing.

✓ Includes Sec 16 Compound Schedule•✓ Speed Post + BSA Email•✓ Flat Fee ₹999

Statutory Q&A•Section 16, Excel Formula & Sec 43B(h)

Frequently Asked Questions on MSME Delayed Payment Interest

What is the current MSME delayed payment interest rate under Section 16?▼

Under Section 16 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, a buyer who fails to pay an Udyam-registered Micro or Small enterprise on time must pay compound interest with monthly rests at three times (3x) the Bank Rate notified by the Reserve Bank of India (RBI). With the RBI Bank Rate at 6.75% per annum as of November 2026, the statutory Section 16 MSME interest rate is 20.25% per annum compounded monthly.

From which exact date does MSME delayed payment interest start running?▼

Interest starts accruing from the 'Appointed Day' defined under Section 2(b) and Section 15 of the MSMED Act. If there is no written credit agreement between the supplier and buyer, the statutory credit period is 15 days from the date of delivery or acceptance, making Day 16 the Appointed Day. If there is a written credit agreement, the credit period cannot exceed 45 days under the proviso to Section 15, even if the Purchase Order specifies 60 or 90 days.

How do I do MSME interest calculation in Excel with monthly compounding?▼

To perform MSME interest calculation in Excel for complete overdue months, use the compound future value formula =Principal*((1+(3*BankRate/12))^Months) and subtract the Principal. For invoices with both full months and a partial stub period, multiply the closing balance of the final full month by (3*BankRate)*(RemainingDays/365), or click 'Download Claim CSV' in our calculator above to open a ready-made month-by-month schedule directly in Excel.

Can a buyer waive Section 16 MSME interest through a clause in the Purchase Order?▼

No. Section 16 expressly begins with the non-obstante clause 'Notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force.' Furthermore, Section 24 gives Sections 15 to 23 overriding effect over any inconsistent contract clause. A Purchase Order stipulating '0% interest on delayed payment' or '90 days credit' is legally void beyond the 45-day statutory ceiling.

How does Section 43B(h) of the Income-tax Act help MSMEs recover unpaid invoices?▼

Under Section 43B(h) of the Income-tax Act, 1961, any sum payable by a buyer to a Micro or Small enterprise beyond the Section 15 time limit (15 or 45 days) is allowed as a tax deduction only in the financial year in which it is actually paid. If an overdue MSME invoice remains unpaid on March 31, the entire invoice amount is added back to the buyer's taxable income and taxed at 25.17% to 34.94%. Additionally, under Section 23 of the MSMED Act, the 3x compound interest paid is never deductible as an expense.

Are Medium Enterprises or unregistered vendors eligible to claim Section 16 compound interest?▼

No. Under Section 2(n) of the MSMED Act, 2006, a 'supplier' covered by Chapter V (Sections 15 to 24) includes only Micro Enterprises and Small Enterprises holding a valid Udyam Registration prior to entering into the supply contract, as held by the Supreme Court in M/s Silpi Industries v. Kerala State Road Transport Corporation (2021) 18 SCC 790. Medium Enterprises must pursue recovery via commercial civil suits, arbitration, or the Insolvency and Bankruptcy Code (IBC).

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