MSME 45-Day Payment Rule in India (2026): How Freelancers Use It to Get Paid

If you're a freelancer or small business in India, there's a law that exists specifically to get you paid on time — and most people who could use it have never heard of it.

It's the MSME payment rule under the MSMED Act, 2006. Since FY 2023-24 it has real teeth, because late payments to MSMEs now hit the buyer's tax bill. This guide explains the rule in plain English and, more importantly, shows you how to actually use it to get overdue invoices paid.

The rule in one paragraph

If you're registered on Udyam as a micro or small enterprise, a buyer must pay you within 45 days of accepting your work when you have a written agreement — or within 15 days when you don't. Miss that, and the buyer legally owes you compound interest at three times the RBI bank rate, compounded monthly. On top of that, under Section 43B(h) of the Income Tax Act, the buyer can't claim your invoice as a tax deduction until they actually pay you — so paying you late costs them money.

The two deadlines: 15 days vs 45 days

The time limit depends on whether you and the client have a written agreement:

The clock starts from the day of acceptance of the goods or services — not the invoice date and not the day the client "gets around to" reviewing it. In practice, if there's no objection within 15 days of delivery, the work is treated as accepted.

Who qualifies (and who doesn't)

• You are registered on the Udyam portal as a micro or small enterprise. Registration is free and most solo freelancers easily fall under "micro."
• You are a manufacturer or service provider. Almost all freelancers — designers, developers, writers, consultants — are service providers.
• The buyer can be anyone: a company, LLP, partnership, proprietorship or individual running a business. The buyer's own size or MSME status doesn't matter.

Why Section 43B(h) is your real leverage

This is the part that changed everything in FY 2023-24.

Normally, when a business buys something, it deducts that cost from its profit to lower its tax. Section 43B(h) added one condition for purchases from micro and small enterprises: the buyer can only take that deduction in the year they actually pay you, and only if they pay within the 15/45-day window.

If they pay you late, the deduction gets pushed into a later financial year. That means a higher taxable profit — and a bigger tax bill — in the current year. For a client closing their books at year-end, an unpaid MSME invoice is now a tax problem, not just an accounts-payable line item.

The interest you're actually owed

Under Section 16 of the MSMED Act, a buyer who pays late owes you interest — and it's not token interest:

• Rate: three times the bank rate notified by the RBI
• Compounding: monthly (compound interest, with monthly rests)
• Period: from the day after the due date until the date of actual payment

This interest is a legal entitlement, not a favour you're asking for. And here's a detail buyers dislike: the interest they pay you on a delayed MSME payment is itself not tax-deductible for them.

How to use the rule to get paid: 5 steps

A reminder template that uses the rule

You don't need to be aggressive. The most effective version simply states the facts the buyer's own finance team already knows.

Subject: Payment due – Invoice #[number] (MSME timeline)
Hi [Name],
Following up on Invoice #[number] for ₹[amount], for work accepted on [date]. As a registered micro/small enterprise (Udyam: [your Udyam number]), payment falls under the MSME 45-day timeline, which means this invoice is now past its due date.
I'd appreciate confirmation of a payment date this week. Settling it within the MSME window also keeps the amount fully deductible for you under Section 43B(h) for this financial year.
Happy to share any details your accounts team needs.
Thanks,
[Your Name]

Filing on MSME Samadhaan

If reminders don't work, the MSME Samadhaan portal is your formal route:

1. Go to samadhaan.msme.gov.in and file the complaint online — it's free.
2. The case is referred to the Micro and Small Enterprise Facilitation Council (MSEFC) of your state.
3. The MSEFC must dispose of the reference within 90 days.
4. If the buyer is found liable, they pay your principal plus the compound interest described above.

Most freelancers never have to reach this stage. Just being a registered MSME — and showing the client you know the rule — is usually enough to get an invoice unstuck.

Bottom line

The MSME payment rule flips the usual dynamic. Late payment isn't only your cash-flow problem anymore — it's the buyer's interest liability and tax problem. Register on Udyam, track each invoice's deadline, reference the rule calmly when you follow up, and keep MSME Samadhaan in reserve. Used well, it's the strongest legitimate leverage an Indian freelancer or small business has to get paid on time.