Best MSME Delayed Payment Interest Calculator Lawyer

If a buyer pays a micro or small enterprise late, Section 16 of the MSMED Act makes it liable to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. This calculator works out that interest for each invoice, from the day after payment fell due to the date of payment, or to today if the invoice is still unpaid.

This page is for MSME suppliers checking what they can claim, buyers checking their exposure, and accountants preparing claims for the Facilitation Council. Enter the invoice amount, the due date, the payment date and the bank rate. The calculator multiplies the bank rate by three, compounds monthly, and adds the result across invoices.

The figures are an estimate to help you understand the claim. Councils and courts may differ on details such as whether the rate changes as the bank rate changes, how part payments are appropriated, and the exact start date. For a claim you will file, have the calculation checked.

Calculate the interest

How the interest is worked out

Section 16 says that where a buyer fails to pay within the time allowed by Section 15, it must pay compound interest with monthly rests on the amount, from the "appointed day" or the date immediately following the agreed date, at three times the bank rate notified by the Reserve Bank.

In plain words: take the RBI bank rate, multiply by three to get the annual rate, divide by twelve to get the monthly rate, and add that much interest to the balance every month, so that each month's interest is calculated on the amount plus all earlier interest. If the bank rate is 5.75%, the annual rate is 17.25% and the monthly rate is about 1.4375%. After twelve months, ₹10 lakh grows to about ₹11.87 lakh, so the interest is about ₹1.87 lakh, compared with ₹1.72 lakh at simple interest.

The start date depends on the agreement. If the parties agreed a credit period in writing, interest runs from the day after that period ends, but the period can never be more than 45 days from the day of acceptance or deemed acceptance. If there was no written agreement, payment is due within 15 days of acceptance. Goods or services are deemed accepted if the buyer does not object in writing within 15 days of delivery.

Worked examples

These examples assume one rate throughout. Actual claims may use the bank rate in force for each period.

Which bank rate to use

The bank rate is set by the RBI and is aligned with the Marginal Standing Facility rate. It changes when the RBI changes its policy rates. In April 2026, with the repo rate at 5.25%, the bank rate was 5.50%. On 7 October 2026, the RBI raised the repo rate to 5.50%, and the bank rate became 5.75%.

There are two common approaches to applying the bank rate over a long period. One applies the bank rate in force on the date payment fell due for the whole period of delay. The other changes the rate as the bank rate changes. Councils and courts have not always been consistent. If your claim covers a period when the bank rate changed, calculate it both ways, state the method you are using in your claim, and be ready to justify it. The calculator above uses a single rate; for a multi-rate calculation, run it separately for each period or ask us to prepare a working.

You can find the bank rate history on the RBI's website, in its press releases on monetary policy and its database of rates.

Using the calculation in a claim

What changes the figure

For buyers: why this number matters to you

Buyers sometimes underestimate how quickly Section 16 interest grows. On a delayed payment of ₹25 lakh, two years of compounding at 17.25% adds more than ₹10 lakh. Section 23 of the MSMED Act says this interest is not deductible for income tax.

There is also a separate tax rule. Under Section 43B(h) of the Income-tax Act, 1961, carried into Section 37(2)(g) of the Income-tax Act, 2025, an amount payable to a micro or small enterprise beyond the Section 15 time limit is allowed as a deduction only in the year it is actually paid. For a business that has delayed payments over a year-end, this can increase its tax for that year.

Companies must also disclose overdue amounts payable to micro and small enterprises in their financial statements, under Section 22 of the MSMED Act and the Companies Act schedules. If your business has overdue MSME payables, paying them, or agreeing a settlement, is usually cheaper than waiting for a council award.

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:

• Invoice-wise calculations: prepared for filing before the council.
• Rate history applied: with the method stated clearly.
• Buyer-side exposure reviews: before a council notice arrives.
• Full council representation: filing, conciliation and arbitration.
• Written fee terms: agreed stage by stage, never linked to the outcome.

Calculation mistakes

Part payments: which invoices do they clear?

When a buyer makes a lump-sum payment against a running account, the question of which invoices it pays affects both interest and limitation. Under Sections 59 to 61 of the Indian Contract Act, if the buyer specifies which invoices a payment is for, it must be applied that way. If the buyer does not specify, the supplier can choose. If neither specifies, the payment is applied to debts in order of time, oldest first.

For interest purposes, applying payments to the oldest invoices first generally means interest stops on those invoices and continues on newer ones. A supplier that applies payments to interest first, and then to principal, may claim a higher amount; some councils accept this where the supplier's ledger has consistently done it, others do not. Be consistent, and say in your claim how payments have been applied.

If the buyer's remittance advice says a payment is for particular invoices, follow it. Arguing later that it should have been applied differently rarely helps.

Interest after the award, and in court cases

The council's award should state the interest up to the date of the award and direct that Section 16 interest continue until payment. If it does not, ask for it. Post-award interest under Section 31(7)(b) of the Arbitration Act applies if the award is silent, but the Section 16 rate is usually higher.

If the buyer challenges the award and deposits 75%, interest continues to run on the amount awarded, subject to what the court directs. A buyer that loses the challenge after two years will owe the balance with interest for that period too. This is one reason why many challenges settle.

Section 16 interest can also be claimed in a civil suit, not only before the council. Section 17 says the buyer is liable to pay the amount with interest, and courts have applied Section 16 in recovery suits by registered suppliers. The council route is usually faster and cheaper, but a supplier that has already filed a suit does not lose the statutory interest.

Checking a buyer's own disclosures

Companies must disclose in their annual financial statements the principal and interest due to micro and small enterprises, and the interest paid and payable under the MSMED Act. Many companies also file half-yearly returns with the Registrar of Companies about outstanding dues to micro and small enterprises beyond 45 days. These disclosures, available from the company's filings, can confirm that the buyer itself has treated your invoices as outstanding and overdue, which helps on both the amount and limitation.

Interest when the dispute is about quality

If the buyer objected to the goods or services in writing within 15 days of delivery, the day of acceptance shifts to the day the supplier removes the objection. Interest then runs from the due date calculated from that later day. If the objection related to only part of a consignment, the acceptance date may differ for the accepted and the objected parts.

For the calculation, list objected invoices separately. Show the date of the objection, the date it was resolved (for example, by replacement or a credit note), and the new due date. If the buyer's objection was raised after 15 days, it does not change the acceptance date under the Act, though it may still be a defence on merits if the goods were genuinely defective.

Interest on interest: why the compounding matters

The difference between simple and compound interest is small over a few months but grows over longer periods. At 17.25% a year, ₹10 lakh overdue for one year attracts about ₹1.87 lakh compound interest against ₹1.73 lakh simple. Over three years, the compound figure is about ₹6.72 lakh against ₹5.18 lakh simple. For older claims, compounding can add a substantial amount.

Councils and courts apply compound interest as Section 16 requires. If a buyer's settlement offer calculates interest as simple, or at a lower contractual rate, compare it with the statutory figure before deciding. The statutory figure is your starting point in negotiation, not a figure to be discounted away at the first meeting.

Using the figure in negotiations

The calculated interest is a powerful negotiating tool. Many buyers, when shown an invoice-wise calculation at three times the bank rate, choose to pay the principal promptly in exchange for a reduction in interest. Suppliers should decide in advance how much interest they are willing to give up for prompt payment, and put any agreement in writing.

For buyers, the calculation shows the cost of waiting. Interest grows every month, is not tax-deductible, and will usually be included in a council award, which the buyer must deposit 75% of to challenge. A buyer that settles at conciliation, with the principal and a negotiated part of the interest, usually pays less than it would after an award.