Best Paying MSME Suppliers on Time: A Compliance Guide for Buyers Lawyer

If your business buys goods or services from micro or small enterprises, Indian law sets a hard limit on how long you can take to pay: the date agreed in writing, but never more than 45 days from acceptance, or 15 days if nothing was agreed. Pay late, and you owe interest compounded monthly at three times the RBI bank rate, the supplier can take you to the MSME Facilitation Council, and the payment may be disallowed as a tax deduction until it is made. Many buyers learn about these rules only when a council notice or a tax question arrives.

This page is for companies, firms and other buyers that want to comply. In short: identify which of your suppliers are micro or small enterprises; put payment terms of 45 days or less in your contracts with them; track acceptance dates and due dates; pay on time, or record genuine disputes promptly; file the half-yearly MSME return if your company has dues beyond 45 days; disclose MSME dues in your financial statements; and remember the tax consequence of late payment.

Compliance is mainly a process question: knowing which suppliers are covered and paying them within the limit.

Is this your situation?

The rules in brief

Which suppliers are covered

The payment rules protect "suppliers", meaning micro and small enterprises that hold a registration under Section 8 of the MSMED Act, now through the Udyam system and, from 15 October 2026, through a free and voluntary national platform under the 2026 amendment. Medium enterprises are not protected by the delayed payment provisions. From 1 April 2025, a micro enterprise has investment in plant and machinery or equipment up to ₹2.5 crore and turnover up to ₹10 crore, and a small enterprise has investment up to ₹25 crore and turnover up to ₹100 crore.

Retail and wholesale traders have been allowed to register on Udyam since 2021, but only for priority sector lending purposes. They are not treated as micro or small enterprises for the delayed payment provisions, so purchases from them are not covered. To identify covered suppliers, ask each supplier for its registration certificate and classification, record it in your vendor master, and update it annually, since classification can change with turnover.

How we help buyers comply

Time and typical cost range

Our fees are agreed in writing at the start, stage by stage, and are not linked to the outcome.

What we need

Key dates for an MSME invoice

Acceptance and deemed acceptance

Section 2(b) of the MSMED Act defines the "appointed day" by reference to the day of acceptance or deemed acceptance. The Explanation to Section 2(b) provides that if the buyer raises an objection in writing about the goods or services within 15 days of delivery, acceptance is the day the objection is removed by the supplier; if no objection is made within 15 days, the day of delivery is the day of deemed acceptance.

This makes the acceptance process important. If your quality team inspects goods and finds defects, the objection must be in writing and within 15 days. A complaint made orally, or weeks later, does not stop the clock. Build this into your goods receipt process, with a clear record of each objection and its resolution.

The tax disallowance

Under Section 43B(h) of the Income-tax Act, 1961, inserted by the Finance Act, 2023 and effective from the 2023-24 financial year, any sum payable to a micro or small enterprise beyond the time limit in Section 15 of the MSMED Act was allowed as a deduction only in the year of actual payment. The Income-tax Act, 2025, in force from 1 April 2026, carries this rule into Section 37(2)(g), with the same substance. Unlike some other items under the old Section 43B, there is no relief for paying before the due date of filing the return; the payment must be within the MSMED Act limit.

So a buyer that pays an MSME invoice late, even by a few days across a year-end, may lose the deduction for that year. Interest paid under Section 16 is not deductible at all, under Section 23 of the MSMED Act. Coordinate with your tax adviser for year-end payables.

Laws that apply

How we work

We are a litigation and advisory practice led by Advocate BK Singh, with offices in Dwarka (New Delhi) and Vaishali (Ghaziabad). This is what you can expect:

• Practical compliance: processes your procurement and accounts teams can follow.
• Contract updates: payment terms aligned with the law.
• Dispute readiness: proper objection records for genuine disputes.
• Council defence: if a claim arrives, we are ready with your records.
• Written fee terms: agreed stage by stage, never linked to the outcome.

Mistakes buyers make

MSME Form I

The Specified Companies (Furnishing of Information about Payment to Micro and Small Enterprise Suppliers) Order, 2019 requires companies that get supplies from micro and small enterprises and whose payments to them exceed 45 days from acceptance or deemed acceptance to file a half-yearly return in MSME Form I with the Registrar of Companies. The return states the amount due and the reasons for the delay. It is filed for the periods April to September and October to March, by the end of the month following each half year.

Failure to file is a default under the Companies Act. The Registrar uses the information, and so do the Facilitation Councils and suppliers. The reasons given in the return should be accurate, since they may be referred to in later disputes.

Disclosure in financial statements

Section 22 of the MSMED Act requires buyers whose annual accounts must be audited to disclose in them the principal and interest remaining unpaid to suppliers at the end of the year, interest paid with delayed payments, interest due but not paid, and interest accrued. Schedule III to the Companies Act also requires companies to disclose dues to micro and small enterprises separately in their balance sheets, with ageing.

Auditors check these disclosures and increasingly ask for the vendor mapping behind them. The MSMED (Amendment) Act, 2026 adds a new Section 22A on disclosures, in force from 15 October 2026, which may require additional information from buyers. Check the notified rules for the details as they are issued.

Contract terms with MSME suppliers

Purchase orders and supply contracts with micro and small suppliers should state a payment period not exceeding 45 days from acceptance, define how acceptance and objections work, and require the supplier to declare its registration and classification, with an obligation to inform the buyer of changes. A clause that tries to contract out of the MSMED Act, such as waiving interest, is likely to be unenforceable, because the Act's provisions apply notwithstanding any agreement to the contrary.

Contracts can still include genuine quality and inspection terms, and the buyer can withhold payment for goods properly objected to within 15 days. Where a contract is with a supplier whose classification may change during the contract, include a clause providing that payment terms will be adjusted if it becomes or ceases to be a micro or small enterprise.

TReDS

The Trade Receivables Discounting System (TReDS) is an electronic platform, regulated by the RBI, where suppliers can discount their invoices on buyers. The buyer accepts the invoice on the platform, financiers bid to discount it, and the supplier receives payment early, while the buyer pays the financier on the due date. Since 2018, companies above a notified turnover threshold and central public sector enterprises have been required to register on TReDS, and the MSMED (Amendment) Act, 2026 adds a new Section 15A on TReDS for central public sector enterprises.

For buyers, TReDS can help suppliers get paid within the time limit while managing cash flow. Whether payment through TReDS satisfies the 45-day rule depends on when the supplier receives the money, so structure the process with care.

When a dispute arises

If a buyer genuinely disputes an MSME supplier's invoice, it should record the dispute in writing promptly, ideally within the 15-day acceptance period for quality issues, and communicate it to the supplier. Withholding payment without recording a dispute exposes the buyer to interest and a council claim. Where only part of an invoice is disputed, pay the undisputed part on time.

If the supplier refers the matter to the Facilitation Council, the buyer's written objections and the acceptance records will be central to its defence. See MSME claim defence.

Year-end review

Before each financial year-end, review MSME payables to identify invoices that will be beyond the 45-day limit at the year-end. Paying them within their due dates, before the year-end where they fall due, protects the deduction for that year. Invoices already overdue will be deductible only in the year of payment, so paying them soon limits the delay in the deduction and stops interest growing. Coordinate this review with your tax adviser and auditors.

Services and the 45-day rule

The payment rules apply to services rendered by micro and small enterprises as well as goods supplied. Service providers such as logistics companies, IT and software firms, facility management providers, consultants and contractors registered as micro or small enterprises are covered. For services, acceptance is the day the service is performed, or the day an objection about it is removed, and deemed acceptance applies if no objection is raised within 15 days.

Buyers often overlook service providers when mapping MSME suppliers, because their vendor master is organised around goods. Include all suppliers, including professional and service vendors, in the mapping exercise.

Group companies and related suppliers

The rules apply to any buyer that purchases from a covered supplier, including where the supplier is a related company. Group companies that buy from MSME affiliates on long credit terms may find the payments caught by the tax disallowance and the interest provisions. Review intra-group arrangements and align them with the 45-day limit where the supplier is a micro or small enterprise.

Training procurement and accounts teams

Compliance depends on people in procurement, stores, quality and accounts following the process. A short training session explaining the rules, the acceptance and objection process, the tracking of MSME invoices and the consequences of delay is often the most effective step. Provide a one-page checklist and include MSME compliance in internal audit reviews.