Udyam Registration and the MSME 45-Day Payment Rule: The Registration That Decides How Long Customers Can Keep Your Money

Licences | RegisCorp Team

Checked on 9 October 2026. Udyam registration is usually sold as a certificate. The more useful way to see it is as a payment-time law. If you are a registered micro or small enterprise that sells goods or services, your buyer must pay you within 45 days of accepting the delivery (15 days if you have no written agreement). If they pay later, they owe you compound interest at three times the RBI bank rate, and they lose the tax deduction on that purchase until the day they actually pay. This post explains the rules, the numbers, the traps and the steps to use them.

RegisCorp Consultancy LLP is a digital-first legal and compliance firm in Kota, Rajasthan, working with businesses across India. We write these guides so you can check the rules before you pay anyone, including us.

Key takeaways

• Registration is what switches the law on for you. The 45-day limit in Section 15 of the MSMED Act protects a "supplier", meaning a micro or small enterprise that has registered. Medium enterprises are not covered.
• The limit is 45 days from acceptance, not from invoice date. With no written agreement the limit is 15 days. A contract that says 60 or 90 days cannot override the 45-day ceiling.
• Late payment costs the buyer twice. Interest runs at three times the RBI bank rate with monthly compounding (Section 16), and it is not tax deductible. Under Section 43B(h) of the 1961 Act, now Section 37(2)(g) of the Income-tax Act 2025, the purchase itself is deductible only when paid.
• The classification limits rose on 1 April 2025. Micro is up to ₹2.5 crore investment and ₹10 crore turnover. Small is up to ₹25 crore and ₹100 crore. Medium is up to ₹125 crore and ₹500 crore.
• Enforcement is slow. The MSME Samadhaan portal shows about 2.57 lakh applications. Crisil reported that about 16% had been unresolved for over a year as of 14 August 2026. Your best tool is usually the letter that cites the tax and interest cost, not the filing.
• Not every benefit is real. The CGTMSE guarantee, government tender relaxations and some fee concessions are real but conditional. Udyam gives no income tax or GST exemption.
• A 2026 amendment changed the dispute process, not the 45-day rule. Parliament passed it in August 2026. Sources conflict on how much of it is in force today.
• Traders are a grey area. Udyam registration for wholesale and retail trade was extended for priority-sector lending only. Whether a pure trader can use Section 15 or trigger Section 43B(h) is contested.

The key numbers and dates in one place

Why Udyam registration is really a payment-time law

Most guides list ten "benefits" of Udyam registration and stop. Most are minor. The one that can change your cash flow is the least advertised: Chapter V of the Micro, Small and Medium Enterprises Development Act, 2006.

Chapter V says a buyer must pay a registered micro or small supplier within a fixed time. It adds interest if the buyer does not. It gives you a forum to claim the money, the Micro and Small Enterprise Facilitation Council. Then the Finance Act 2023 added a tax consequence for the buyer. That tax rule is Section 43B(h).

Before 2023 the rule existed, but a large buyer could ignore it. The only cost was interest that few suppliers claimed. After 2023 the buyer's finance team has its own reason to care. A late payment to a registered micro or small supplier can push a deduction into the next tax year. Auditors now ask about it. Large buyers have set up reports that list MSME vendors and flag invoices nearing day 45.

You can use that. A registered supplier who prints the registration number on the invoice and writes clear payment terms is harder to pay late. An unregistered supplier has none of this protection, however small the business is.

Two cautions up front. First, the law does not collect the money for you. Enforcement is slow and uneven, and we cover the numbers below. Second, registering can change how some buyers treat you. A Rajya Sabha question answered on 21 July 2026, as reported by TaxGuru, asked about buyers moving to unregistered vendors and pressing suppliers to give up their Udyam registration. The written reply did not directly answer those parts. We found no official data on how often that happens. Treat it as a risk to weigh, not a reason to stay unregistered.

MSME classification limits from 1 April 2025

The limits were revised in 2025 and the Udyam portal now shows them. Both tests use two numbers: investment in plant and machinery or equipment, and turnover.

The Union Budget speech of 2025 announced the increase. A secondary source, Taxmann, gives the notification as S.O. 1364(E) dated 21 March 2025, effective 1 April 2025. We could not open the Gazette copy on 9 October 2026, so we cite the Udyam portal for the numbers and flag the notification number as unverified.

How the two tests work together

You must be under both limits to stay in a category. If you exceed either one, you move up. Taxmann's summary of the 2020 notification (S.O. 2119(E)) says you move down only if you fall below both limits of the lower category.

Example: a printing unit has ₹3 crore of plant and machinery and ₹8 crore of turnover. Investment is above the micro limit of ₹2.5 crore, so it is small, even though turnover fits micro.

Details that catch people

• Exports are excluded from turnover. Turnover for classification is calculated net of exports of goods and services, according to Taxmann's reading of the notification.
• Investment is taken from your income tax return. It is the written-down value of plant and machinery or equipment, and some items such as pollution control and research equipment are excluded, per the same source.
• All GSTINs under one PAN count as one enterprise. If you run three units on one PAN, the portal adds them up. You cannot register each unit separately to stay micro.
• Moving up has a grace period. When an enterprise moves into a higher category, it keeps the earlier category's non-tax benefits for three years, per Taxmann. When it moves down, the new status applies from 1 April of the next financial year.
• The year matters. Taxmann suggests that FY 2024-25 data is still classified on the old limits. We could not confirm that on the official portal.

Why classification matters for the payment rule

Section 15 and Section 43B(h) apply to micro and small enterprises only. A medium enterprise has none of the statutory payment protection. If your turnover is ₹150 crore and your investment is ₹30 crore, you are medium. You cannot claim Section 16 interest and your buyer's deduction is not at risk.

Crossing ₹100 crore of turnover or ₹25 crore of investment removes the payment law's protection, and the grace period covers only non-tax benefits. At that size, your position must come from contract terms, not the statute.

What the 2026 amendment does to classification

The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 was passed by the Rajya Sabha on 3 August and the Lok Sabha on 7 August 2026. According to IMPRI, the President gave assent on 13 August 2026. The amendment removes the fixed rupee figures from the Act and lets the Central Government set the investment and turnover limits by notification, based on both tests.

Nothing in the Bill text we read on the PRS India site changes the figures themselves. The Udyam portal still shows the April 2025 limits. Check the portal before you rely on any limit, because the next change can now come by notification instead of by an Act of Parliament.

Who should register on Udyam: a decision framework

Registration is free and takes under an hour. The question is whether it helps you or exposes you. Work through these questions in order.

Step 1. What do you sell?

• If you make goods or provide services, go to Step 2.
• If you resell goods you do not make (a trader, distributor or retailer), you can register, but the benefits are limited to priority-sector lending under a 2 July 2021 Ministry of MSME memorandum, as described by Taxmann. Section 15 and Section 43B(h) are contested for you. Register if you want bank credit, and do not build a collection strategy on the 45-day rule.
• If you sell only to consumers and are paid at the time of sale, the payment law does not help you. Go to Step 4.

Step 2. Are you micro or small?

• If both investment and turnover are within the small limits, go to Step 3.
• If you are medium or larger, the statutory payment protection does not apply to you.

Step 3. Do your customers pay on credit?

• If you invoice businesses and wait for payment, registration protects your cash flow. Register before you sign the next contract. Courts have linked protection to registration at the time of the contract, so registering after a dispute may be too late (see the section on registration dates).
• If customers pay in advance or on delivery, the payment law matters little. Go to Step 4.

Step 4. Do you need any of these?

• Bank credit without collateral through the CGTMSE guarantee.
• Sales to central government departments or central public sector units, where MSE purchase preferences apply.
• A lower government fee on some filings, such as trademark applications.
• Trade receivable discounting on TReDS platforms.

If you need any of them, register. If none apply and you do not sell on credit, registration is optional, but still free.

Step 5. Check the downside.

• Do one or two large buyers account for most of your revenue? Ask whether they have a policy against Udyam-registered vendors or pressure on suppliers to extend credit. If yes, you still register, but you manage the relationship carefully, and you write terms you can live with.
• Are you close to the medium limit? Register anyway, but plan for the day you cross it.

The result for most businesses: a manufacturer or service provider with business customers on credit should register. A pure trader should register only for credit access. A consumer-facing business with immediate payment can register for credit and tenders, but will not get much from the payment law.

If you have not yet chosen a legal structure, the choice affects who signs the Udyam registration, how many PANs you have and how your tax is calculated. Our guide on choosing between a private limited company, LLP, OPC and partnership covers that. Udyam works the same way for a sole proprietorship, a partnership, an LLP or a company.

Udyam registration steps and what has changed

The process is online on the official Udyam portal at udyamregistration.gov.in. Registration is free, and the portal warns that only the government portal and its single window system are authorised to register enterprises. Sites that charge a fee for "Udyam registration" are agents, not the government. You may use an agent for convenience, but you never need to pay one to be eligible.

What you need

• Aadhaar of the right person. For a proprietorship it is the proprietor. For a partnership it is the managing partner. For an HUF it is the karta. For a company, LLP, society or trust it is the authorised signatory, who must also provide the organisation's PAN and GSTIN.
• PAN and GSTIN where applicable. The portal states that PAN and GSTIN are mandatory from 1 April 2021 as per CGST Act applicability. If you are not required to hold a GSTIN, you do not need one to register.
• No uploaded documents. The portal says no proof or certificate needs to be uploaded. Registration is on self-declaration. Investment and turnover figures are pulled from government databases linked to your PAN and GSTIN.
• Basic business details. These are the enterprise name, address, bank account, NIC activity code and number of employees.

So "Udyam registration documents" is mostly a checklist of numbers, not paper. Keep your Aadhaar-linked mobile handy for the OTP.

The steps

1. Open the official Udyam portal and choose the option for new entrepreneurs who are not yet registered.
2. Enter the Aadhaar number and name of the right person, and verify with the OTP.
3. Select the type of organisation and enter the PAN. The portal validates it and fetches linked tax details.
4. Enter the business details, activity codes and bank account.
5. Declare investment and turnover. The system cross-checks them against the Income Tax and GST systems.
6. Submit with the final OTP. The Udyam Registration Number is generated and the certificate is issued online with a QR code.

You can download the Udyam certificate online at any time by logging in. There is no renewal. The portal says the registration number is permanent. Details update from your tax filings, so keep your returns accurate. If your GST returns and income tax return show a turnover that does not match what you declared, expect reclassification.

What has changed in recent years

• Aadhaar is the base. The old Udyog Aadhaar Memorandum and EM-II holders had to register again. The portal says existing UAM holders must register on Udyam.
• One registration per enterprise. You can add several activities to one registration, but you cannot hold two.
• PAN and GST linkage is automatic. The classification now updates from tax data, which means misreporting is visible.
• The 2026 amendment makes filing free and voluntary for all MSMEs, including medium manufacturers, and gives the Udyam portal statutory status, per PRS India's summary and IMPRI. Voluntary does not mean pointless. Credit guarantees, TReDS access and Facilitation Council recourse still depend on being registered.
• False information can be penalised. Section 27 covers wrong declarations. Under the 2026 amendment, a first instance draws a warning and later instances draw a penalty (₹1,000 to ₹50,000 per PRS India's summary).

Informal micro enterprises and the Udyam Assist Platform

Small sellers with no GST registration can use the Udyam Assist Platform (UAP). The Udyam portal lists three routes: new registration, migration for old UAM holders and UAP for informal micro enterprises. A factsheet on the portal dated 13 June 2026 shows about 3.66 crore UAP registrations, all micro.

An RBI circular dated 9 May 2023 (RBI/2023-24/27, as reported by Taxmann) treats informal micro enterprises with a Udyam Assist certificate as micro enterprises for priority-sector lending. That helps with bank credit.

What we could not confirm is whether a UAP-only enterprise counts as a "supplier" under Section 15 for the 45-day rule and Section 43B(h). The Rajya Sabha reply we found does not address it. If most of your income comes from credit sales to larger buyers, ask a professional before you assume protection.

If you are required to have GST registration, get it first. Our GST registration service page explains when it is compulsory, and your GST compliance obligations start once you hold it.

The MSMED Act payment clock: Section 15

Section 15 of the MSMED Act is short and strict. It sets two rules.

1. If you and the buyer have a written agreement, the buyer must pay by the agreed date. That date cannot be more than 45 days after the day of acceptance or deemed acceptance.
2. If there is no written agreement, the buyer must pay before the "appointed day". That is the day after 15 days have passed from acceptance or deemed acceptance.

So an agreement that says "payment in 60 days" is read down to 45. An agreement that says "payment in 30 days" stands at 30. Silence means 15.

What "acceptance" means

The clock starts at acceptance, not at the invoice date. This is where many suppliers lose days.

• Day of acceptance is the day you actually delivered the goods or rendered the service. If the buyer objects in writing within 15 days, acceptance is the day you remove the objection.
• Deemed acceptance applies when the buyer raises no written objection within 15 days of delivery. The delivery date then counts as the acceptance date.

This is the Taxmann and ITAT Online reading of the Act. Keep proof of the delivery date: a signed challan, courier proof, a delivery email, or a completion certificate for services. The day on that paper is day 0.

Counting examples

• Written agreement, 30 days. You deliver on 10 December 2026. The due date is 9 January 2027.
• Written agreement, 90 days. The law caps it at 45. Delivery on 10 December 2026 means the outer limit is 24 January 2027.
• No agreement. Delivery on 10 December 2026. The outer limit is 25 December 2026.
• Buyer objects in writing on day 5 and you fix the problem on day 12. The clock starts on day 12.

Is a purchase order a "written agreement"?

A purchase order that states payment terms is usually treated as a written agreement, according to the Taxmann analysis we read. We found no official circular on it. Put the terms in a document both sides have signed or accepted. An email from the buyer's accounts team saying "we accept 45 days" is better than a verbal promise. A PO plus your invoice with the same terms is better still.

Who is a "buyer"

The Act defines a buyer as anyone who buys goods or receives services for consideration. It is not limited to companies. A proprietor, a partnership firm, an LLP, a trust and a government department are all buyers. The tax consequence in Section 43B(h) only bites buyers who claim a business deduction, which we cover below.

Who is protected: the "supplier" definition

The Act protects a "supplier", meaning a micro or small enterprise that has filed a memorandum (now Udyam registration). It also covers certain bodies, such as cooperatives and trusts that sell goods made by micro or small enterprises. Medium and large enterprises are not suppliers. Micro or small enterprises that have not registered are also outside the definition, per the Taxmann analysis.

The registration date question

Do you need to have been registered before the contract or supply? The Supreme Court has said yes in two cases, and then doubted itself.

• ***Silpi Industries v. Kerala SRTC* (2021) and Gujarat State Civil Supplies Corporation v. Mahakali Foods (2023)** are reported to hold that registration obtained after the contract gives no retrospective benefit.
• ***NBCC (India) Ltd v. State of West Bengal, decided 10 January 2025*, took a different view. A two-judge bench said Section 18 is "not restrictive" and that an application by an unregistered enterprise cannot be rejected only for lack of registration. It referred the question to a three-judge bench. As of the sources we read, the larger bench had not ruled.

That means the position is unsettled. The safe course is simple: register before you sign your next contract and before your next supply. If you registered after a supply and now have an overdue invoice, you may still try, but expect the buyer to raise the point.

Works contracts

LiveLaw's analysis says works contracts remain outside the Act under High Court rulings, with a Supreme Court matter pending. If you are a contractor, get advice before you rely on Section 15.

Section 16: interest at three times the bank rate

Section 16 says that if the buyer does not pay by the due date, the buyer must pay compound interest with monthly rests. The rate is three times the bank rate notified by the Reserve Bank of India. Interest runs from the day after the due date. The Section applies "notwithstanding any agreement", so a clause that caps interest at 6% or waives it does not bind you, according to the LiveLaw article we read. That article also notes that part payments are first adjusted against interest and then principal, and cites High Court decisions for that view. Those are High Court rulings, not Supreme Court rulings.

The current rate

The RBI raised the repo rate by 25 basis points to 5.50% on 7 October 2026, according to Upstox, ETV Bharat and Forbes India. One secondary source, CorpLawUpdates, says that the Bank Rate moved to 5.75% and cites RBI press release 2026-2027/1264. We opened the RBI press release listing on 9 October 2026 and saw the resolution (prid 63742), but we could not read the rate table. Before 7 October the bank rate was 5.50%, per the Outlook Money preview.

Section 16 interest is therefore 3 x 5.75% = 17.25% a year if the 5.75% figure is right, or 16.5% if the old bank rate applies to your period. Monthly compounding makes the effective yearly cost about 18.7% at 17.25%.

Which bank rate applies to a long delay?

The rate is "notified from time to time". If the bank rate changes during your delay, practitioners usually apply the rate in force for each period. We did not find an authoritative ruling that settles this, so for large claims, ask a professional or a Facilitation Council officer how they compute it.

What interest is calculated on

Interest is on the unpaid amount. Whether the GST component forms part of the base is argued both ways, and we did not find a settled rule. Our examples below use a flat ₹10 lakh as the amount payable. If your invoice is ₹10 lakh plus GST, ask whether to claim on the gross amount.

The buyer cannot deduct the interest

Section 23 of the MSMED Act says interest paid under Section 16 is not allowed as a deduction in computing the buyer's income. So it is a hard cost.

Buyer disclosure

Section 22 requires buyers to disclose unpaid MSME dues and interest in their annual statements. Companies also file the half-yearly MSME Form 1 with the Registrar of Companies for payments to micro and small suppliers that are outstanding beyond 45 days. A secondary source gives the due dates as 30 April (for October to March) and 31 October (for April to September), and says it applies to companies only, not LLPs, partnerships or proprietorships. The basis is Section 405 of the Companies Act, 2013 and an MCA order of 22 January 2019. The same source quotes a late-filing penalty of ₹20,000 plus ₹1,000 a day. We could not confirm the penalty on the MCA site.

The 2026 amendment adds graded penalties for buyers who fail to report unpaid dues with interest in their annual accounts: a warning first, then ₹10,000 to ₹50,000, then ₹50,000 to ₹1 lakh for the third and later instances, per PRS India's summary of the Bill. Minimum penalties rise by 10% every three years.

The next date that matters is 31 October 2026, the filing date for a company's MSME-1 for April to September 2026. If your buyer is a company, their finance team is working on this list now. A short, polite reminder in October about invoices that will cross day 45 is well timed.

Section 43B(h) and its Income-tax Act 2025 counterpart

This is the part that moves buyers. We will use plain language.

What the old section said

Section 43B of the Income-tax Act, 1961 lists expenses that are deductible only when you actually pay them, whatever your accounting method. The Finance Act 2023 added clause (h). It covers any sum payable to a micro or small enterprise beyond the time limit specified in Section 15 of the MSMED Act. If you pay that sum late, you can deduct it only in the tax year of actual payment.

The clause applies from assessment year 2024-25, that is, from FY 2023-24 onwards. Sources differ on how they describe the start date, and some pages we read have internal date errors. The 1961 Act is the law for FY 2025-26 and earlier.

Section 43B normally has a relief: if you pay after the year-end but before the due date of your return, the deduction is allowed for the earlier year. Clause (h) is excluded from that relief. For MSME dues, the relief does not apply. That is why it bites.

What the new section says

The Income-tax Act, 2025 (Act 30 of 2025) came into force on 1 April 2026 and uses "tax year" instead of previous year and assessment year. The counterpart of Section 43B(h) is Section 37(2)(g). It reads, in the portion we could confirm on Indian Kanoon, "amount payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15". Section 37(3) carves clause (g) out of the extension to the due date of return, and the due date is now tied to Section 263(1).

The Ministry of Finance confirmed the mapping in a Rajya Sabha reply on 21 July 2026 (Unstarred Question 242, reported by TaxGuru): Section 43B(h) corresponds to Section 37(2)(g) of the 2025 Act. The reply described the aim as easing cash flow and working capital for micro and small enterprises.

Who is covered and who is not

• Micro and small suppliers only. Medium enterprises are not covered. A late payable to a medium enterprise does not trigger the clause.
• Goods and services. Both count.
• Buyers who claim a business expense. The clause bites when the amount would otherwise be deductible. A buyer taxed under a presumptive scheme such as Sections 44AD, 44ADA or 44AE is not affected, according to the Mondaq analysis we read.
• Capital items. The Taxmann article reads the clause as covering capital expenditure too, with depreciation restricted until the seller is paid. We did not find an official clarification, so treat this as unsettled.
• Traders as suppliers. Dues to wholesale and retail traders are generally treated as outside the clause, because the 2021 memorandum limits their MSME benefits to priority-sector lending. TaxUpdate calls this contested, and no official circular we found settles it.

What counts as payment

The clause says "actual payment". Payment by cheque, bank transfer or UPI is clear. A credit note, set-off or journal entry may not count. We did not find an official clarification, so buyers who rely on set-offs should ask their auditor.

What happens at year-end

If the amount is unpaid on 31 March and the Section 15 time limit has already passed, the buyer cannot claim the deduction for that year. The buyer must add it back, report it in the tax audit report (a TaxUpdate article puts this at clause 26 of Form 3CD) and claim it in the year they pay.

If the amount is unpaid on 31 March but the 15 or 45 days have not yet run out, most practitioners treat it as still deductible for that year. Calcguru's example has a 1 March invoice with a 45-day agreement due 15 April, treated as allowed. We did not find an official source for this reading. The ITAT Online article makes a related point: a purchase on 31 March must be paid by mid-April (with a 15-day default) or mid-May (with a 45-day agreement) because there is no extension to the return due date.

What this means in rupees

For a company paying tax at 25.168% (the 22% rate plus 10% surcharge plus 4% cess under the optional regime), deferring a deduction of ₹10 lakh moves ₹2,51,680 of tax forward by a year. The tax is not lost. It is paid earlier. For a firm or LLP at 30% plus 4% cess, the figure is ₹3,12,000. A buyer with brought-forward losses may feel little effect this year.

Worked example: a ₹10 lakh invoice paid on day 45, 90 and 180

Here are the assumptions. Change them for your case.

• Supplier: a Udyam-registered small manufacturer, registered before the contract.
• Buyer: a private limited company on the 25.168% tax rate, with a financial year ending 31 March.
• Invoice amount payable: ₹10,00,000 (we ignore the GST question).
• Written agreement: payment within 45 days of acceptance.
• Acceptance: goods delivered and accepted on 1 February 2027. No written objection.
• Bank rate: 5.75% throughout, so Section 16 interest is 17.25% a year, or 1.4375% a month.
• Interest runs from the day after the due date. Each completed 30-day month compounds. Any part-month is pro-rated simply. Real computations may differ by a few hundred rupees depending on method.
• The buyer's cost of money for the tax deferral is 12% a year (our assumption).

Step 1: the dates

The due date is 18 March 2027. The year-end is 31 March 2027, which is day 58.

Step 2: the interest

How day 90 is worked out: one month at 1.4375% gives ₹10,14,375. The remaining 15 days add half a month of 1.4375% on that amount, which is ₹7,291. The total interest is ₹14,375 + ₹7,291, rounded to ₹21,666.

Simple interest at 17.25% for 135 days would be about ₹63,801, so compounding adds about ₹2,500 here. It matters more over a year or two.

If the bank rate were 5.50%, the statutory rate is 16.5% and the interest is ₹20,720 at day 90 and ₹63,406 at day 180.

Step 3: the buyer's tax effect

At a 12% cost of money, the deferral costs about ₹30,202 (₹2,51,680 x 12%). It is the same at day 90 and day 180, because both land in the next tax year. This is a one-off timing cost. The interest is the part that keeps growing.

Step 4: the buyer's total cost

Step 5: a variant where the tax rule does nothing

Change one fact. The goods are accepted on 1 June 2026 and paid on day 180, which is 28 November 2026. Both dates fall in FY 2026-27, so the deduction is allowed in the year of purchase. Section 37(2)(g) has no extra effect. The buyer still owes the statutory interest on 135 days of delay, ₹66,362, because the interest rule does not depend on the year-end.

The lesson: the tax rule bites when the delay crosses 31 March. A supplier whose invoices fall in January to March has the strongest lever. A supplier whose invoice falls in April has the weakest tax lever, though the interest is the same.

Step 6: the no-agreement case

Without a written agreement, the same ₹10 lakh falls due on day 15. If the buyer pays on day 45, they are 30 days late and owe ₹14,375 of interest. If they pay on day 90, they are 75 days late and owe ₹36,352. A missing contract shortens your wait by 30 days but invites arguments about everything else. Write it down.

What the supplier should take from this

If the buyer pays at day 180 and you do not claim interest, you have lent ₹10 lakh for 135 days free. At a borrowing cost of 14%, that is about ₹51,800 (₹10,00,000 x 14% x 135/365). Many suppliers waive interest to keep the customer. That is a business decision, but make it on purpose and record it.

How to use the rule as a collection lever

Suing a customer is slow and ends the relationship. The cheaper tool is a clear message that shows the buyer what late payment costs them. Use this order.

1. Before delivery, agree the terms in writing and put your Udyam number on the invoice.
2. Seven days before the due date, send a reminder with the invoice, the due date and your bank details.
3. The day after the due date, write again. Say that the invoice is overdue under Section 15 and that interest accrues under Section 16.
4. Fifteen days after, send a formal notice. Quote the invoice, the delivery proof, the due date, the interest to date and a final date.
5. Thirty days after, consider a Samadhaan filing, a lawyer's notice or both.

The best moment to push is January to March. A buyer whose invoice is still unpaid at 31 March loses the deduction for the year. Finance teams know this. Ask for payment by 25 March, not "when convenient".

A short email that works:

Subject: Invoice 214 dated 1 February 2027, ₹10,00,000, due 18 March 2027

Dear Ms Rao, our Udyam number is on the invoice. Under the MSMED Act this invoice must be paid by 18 March 2027. If it is paid after 31 March, your company cannot claim the deduction for it this year under Section 43B(h). Please confirm the payment date. Statutory interest under Section 16 starts the day after the due date.

Keep it factual. Do not threaten, and do not quote a rate you have not checked.

What a reasonable negotiation looks like

Buyers will ask for 60 or 90 days. You can offer 30 days with a discount for 15, or hold at 45. Compare the options in rupees. Carrying ₹10 lakh for an extra 45 days at 12% costs you about ₹14,795. A 1% early-payment discount for paying 30 days earlier is an annualised cost of about 12.3%. If your borrowing cost is higher than that, the discount is worth giving. If it is lower, hold your terms.

Another option is TReDS. The Udyam portal asks MSME units to onboard on four platforms: InvoiceMart, M1xchange, RXIL and DTX India. A financier pays you early against the buyer's approved invoice at a discount, and the buyer pays the financier later. Under the 2026 amendment, central public sector enterprises must settle MSME invoices through TReDS once that provision is in force.

How to write invoice payment terms

Include these on every invoice and quotation.

• Your Udyam registration number and the category (micro or small).
• The invoice date and the date of delivery or service completion.
• The payment period in days from the date of acceptance. For example, "Payment due within 30 days from the date of acceptance of goods."
• A line on deemed acceptance: "Goods are deemed accepted unless a written objection is received within 15 days of delivery."
• A statement on interest: "Delayed payments attract interest under Section 16 of the MSMED Act, 2006."
• Bank details and the invoice number to quote on payment.

For a services contract with milestones, define each milestone, who signs it off, and the number of days for review. If the buyer's review has no end date, the acceptance clock may never start.

A decision rule for the number of days

• If your cost of borrowing is above 14% and your margin is thin, ask for 15 to 30 days.
• If the buyer is a large, regular account and the margin is healthy, 45 days is the legal maximum and a fair ask.
• Never agree to more than 45 in the contract. If you do, you have written a term that the law reads down to 45, and the buyer's team will point to your signature when you ask for the money on day 46.

Keep delivery proof in one folder per invoice. Our bookkeeping and accounting service can set up an ageing report that flags invoices at day 30 and day 40.

MSME Samadhaan and the Facilitation Council

MSME Samadhaan is the government portal at samadhaan.msme.gov.in where a registered micro or small enterprise files a delayed-payment application. The portal routes it to the Micro and Small Enterprise Facilitation Council (MSEFC) for the right state.

What to do before filing

• Send written reminders and a formal notice, so the file shows you asked.
• Gather your Udyam certificate, invoices with your Udyam details, purchase order or agreement, proof of delivery, bank statement and copies of your notices.

The process

1. Log in on the portal with your Udyam details and enter your enterprise, buyer and invoice details.
2. Upload documents.
3. The portal sends the application to the MSEFC with jurisdiction. The Council issues notices to both sides.
4. The Council tries conciliation first. If it fails, the dispute goes to arbitration, and the Council or an institution it names acts as arbitrator.
5. The result is an arbitral award. A buyer who wants to challenge it in court must first deposit 75% of the award amount (Section 19).

Timelines on paper

Under Section 18(5), each reference is to be decided within 90 days. The 2026 amendment adds outer limits: mediation within 90 days of the first appearance date, a reference to arbitration within 30 days after mediation ends, and an award within 90 days of the end of pleadings. That is a possible seven months in total.

Timelines in practice

The official numbers do not support a promise. Crisil's August 2026 note, citing the Samadhaan portal as of 14 August 2026, reports:

• 2,56,892 applications worth ₹55,244 crore filed since inception.
• ₹20,979 crore of those claims still pending, about 38% by value.
• About 40,580 applications, around 16%, unresolved for over a year.
• Caseload that varies widely. Karnataka's 35 councils averaged 397 applications each. Rajasthan's nine averaged 1,767. Uttar Pradesh's 19 averaged 1,095.

LiveLaw, in a separate piece, says several states hold hearings only once a month with 100 or more cases listed, so adjournments of months are common. It also notes that councils are headed by a state Director of Industries, who handles adjudication alongside other duties.

What we do not know is the share of money actually recovered. "Not pending" does not mean "paid". Cases can end through settlement, withdrawal, rejection or an award that the buyer then challenges. We found no official recovery rate. A sizeable part involves public buyers: per LiveLaw, about 32,797 applications are against state or central departments and public units.

If you are in Rajasthan, plan for a long process.

When to file

File when the relationship is already lost, the buyer has stopped responding, or the amount is large enough to justify the wait. Also file before limitation runs out. The Limitation Act applies to these proceedings as we understand the Silpi Industries case, and recovery of money is generally subject to a three-year limit, but confirm the date with a lawyer.

What the 2026 amendment changes and what it does not

The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 is described by IMPRI as Act No. 16 of 2026, with presidential assent on 13 August 2026. The PRS India text of the Bill shows these changes.

• Sections 15, 16 and 17 are not amended. The 45-day rule and the three-times interest formula stay.
• New Section 15A. Central public sector enterprises must settle MSE invoices through TReDS.
• Section 18 gets time limits and a new Section 18A lets settlements and awards be recovered as arrears of land revenue and treated as debt under the Insolvency and Bankruptcy Code.
• Section 19 keeps the 75% deposit. The court may release part of the deposit to the supplier while a challenge is pending, and must direct at least 50% of the award if the challenge has been pending over six months.
• Councils. States must set up adequate numbers of Councils, and each must include a member from the field of law.
• Penalties. Criminal fines are replaced with graded penalties.
• Classification and registration. Limits move to notification. Registration becomes free and voluntary.

Is it in force? Sources conflict. Lexplosion says it "has gained effect on 13th August 2026". IMPRI says each provision starts on a date the Central Government notifies and that several notifications had not been issued when it wrote. Another article found no commencement notification as of 15 September 2026. We could not confirm the position on the e-Gazette on 9 October 2026. Assume nothing: check before you plan around the new time limits.

The amendment does not change Section 43B(h) or the 45-day clock. It only changes what happens after you file.

MSME registration benefits: what is real and what is a myth

Benefits that are real, with conditions

• Statutory payment protection (Sections 15 to 24), covered above. This is the main one.
• Collateral-free credit through CGTMSE. The Credit Guarantee Fund Trust for Micro and Small Enterprises guarantees eligible loans, and the SBI page says eligible loans go up to ₹10 crore and that a Udyam number is mandatory. A guarantee fee applies from 1 April 2025, from 0.37% of the loan up to ₹10 lakh to 1.20% for ₹8 crore to ₹10 crore, excluding GST. The guarantee does not force a bank to lend, and banks still apply their own credit checks. We did not verify the share of the loan that is guaranteed.
• Central government tenders. The Public Procurement Policy for MSEs Order, 2012 (as amended) asks central ministries, departments and central public sector units to buy at least 25% from MSEs, including sub-targets of 4% for SC/ST and 3% for women-owned enterprises. MSEs get free tender documents and an exemption from earnest money deposit. According to a public-sector FAQ we read, it does not apply to state governments, traders or works contracts. It matters only if you sell to these buyers.
• Priority-sector lending. Banks count loans to micro and small enterprises, including Udyam Assist enterprises, towards priority-sector targets. That helps access. It does not set your interest rate.
• Lower trademark fee. One filing service lists ₹4,500 against ₹9,000 per class for small enterprises on e-filing. The page we read used the old classification limits, and we could not confirm the current fee on the IP India site. If you plan to protect a brand, see our trademark registration page and check the fee table at filing.
• TReDS access for invoice discounting, as described above.

Benefits that vary

• Interest subsidies and state schemes. These depend on the state and the scheme year. Some require Udyam, others require other registrations. We cannot give you a rate. Ask your bank and your state industries department for the current list.

Myths

• "Udyam gives a tax exemption." It does not. Income tax and GST apply as usual. The only tax link is the buyer's deduction rule.
• "The certificate is a licence." It is not. You still need the permits your trade needs.
• "Registration gets you a subsidy automatically." It does not. Schemes need separate applications.
• "Udyam replaces GST registration." It does not. See GST registration.
• "You must renew every year." The portal says no renewal is needed.
• "You must pay an agent." Registration is free on the official portal.
• "Registration guarantees 45-day payment." It gives you rights. The buyer can still pay late, and you must act.
• "Udyam and Startup India are the same." They are different. Udyam is under the Ministry of MSME. DPIIT recognition is a separate route. See our Startup India registration page.

Mistakes that cost money

1. Registering after the dispute. The Supreme Court position is unsettled, but two decisions point to registration at the time of contract. Register before you sign.
2. Counting from the invoice date. The clock starts at acceptance. Invoice on day 10 after delivery and you lose 10 days of interest.
3. Weak proof of delivery. Without a signed challan or email, the buyer can say acceptance was later or that there was an objection.
4. Agreeing to 60 or 90 days in writing. The law reads it down to 45, but your signed term gives the buyer an argument and a reason to be late.
5. Not printing your Udyam number on the invoice. A buyer's accounts team may not know you are registered. Without the number, you may be missing from their MSME vendor list.
6. Assuming you stay micro. Cross ₹100 crore turnover or ₹25 crore investment and you are medium. Payment protection ends, though non-tax benefits may remain for three years.
7. Treating units on one PAN as separate micro units. The portal adds them up, and wrong declarations can attract a penalty.
8. Relying on traders' status. A pure trader with Udyam registration should not assume the 45-day rule or Section 43B(h) applies. Plan for the case where it does not.
9. Buyer side: paying in April. A buyer who pays on 5 April an invoice due on 18 March loses the deduction for the year, which in our example costs about ₹30,000 on ₹10 lakh plus interest. Set a payment run for 25 to 28 March for all micro and small vendors.
10. Buyer side: no vendor master data. If you do not record each vendor's Udyam number, category and agreed terms, you cannot find the invoices that hit Section 43B(h). Keep this in your books. Our accounting and tax team can help set this up.
11. Buyer side: treating interest as a deductible expense. Section 23 bars it. Do not book it in a way that creates a claim you then have to reverse in the income tax return.
12. Company buyer: missing the MSME-1 return. Due on 31 October for April to September. If you owe MSME suppliers more than 45 days, file it. For an incorporated business, our private limited company compliance work includes this check. LLPs are outside MSME-1 per the source we read, though the LLP compliance calendar still matters for their other filings.

Frequently asked questions

What is Udyam registration and who should register on Udyam?

Udyam registration is the government's free, online registration for micro, small and medium enterprises. Manufacturers and service providers that sell to businesses on credit gain the most, because registration brings the 45-day payment protection. Traders can register, but their benefits are limited to priority-sector lending. If you sell only to consumers and are paid at once, register mainly for credit or tenders.

Is Udyam registration free, and what documents are needed?

It is free on the official portal, and no one else is authorised to charge a fee for the registration itself. You need the Aadhaar of the proprietor, managing partner, karta or authorised signatory, plus the PAN and, where required, the GSTIN. No documents are uploaded, because the portal works on self-declaration and fetches tax data from linked government records.

What are the MSME classification limits now?

From 1 April 2025, a micro enterprise has investment up to ₹2.5 crore and turnover up to ₹10 crore. A small enterprise has up to ₹25 crore and ₹100 crore. A medium enterprise has up to ₹125 crore and ₹500 crore. You move up if you exceed either limit.

What is the MSME 45-day payment rule?

Section 15 of the MSMED Act says a buyer must pay a registered micro or small supplier by the agreed date, which cannot be more than 45 days from the day of acceptance. If there is no written agreement, the limit is 15 days. Acceptance is the delivery date unless the buyer objects in writing within 15 days.

How much interest can I claim for delayed MSME payment?

Section 16 gives compound interest with monthly rests at three times the RBI bank rate, and it overrides any contract clause that says otherwise. If the bank rate is 5.75%, the rate is 17.25% a year, but we could not confirm the 5.75% on the RBI site. On ₹10 lakh paid 45 days late, interest comes to about ₹21,700 under our stated method.

What is Section 43B(h), and what replaced it in the new Income-tax Act?

Section 43B(h) of the 1961 Act allows a deduction for amounts owed to micro and small enterprises only when paid, if the payment is later than the Section 15 limit. In the Income-tax Act, 2025, effective 1 April 2026, the counterpart is Section 37(2)(g). Use 43B(h) for FY 2025-26 and earlier, and 37(2)(g) from tax year 2026-27.

Does Section 43B(h) apply to medium enterprises or traders?

It does not apply to medium enterprises. For traders, dues are generally treated as outside the clause, because trade Udyam registration was extended only for priority-sector lending. We found no official circular that settles the point, so a buyer with large trader payables should take written advice.

How do I file a complaint on MSME Samadhaan?

Send written reminders and a formal notice first, then log in at samadhaan.msme.gov.in with your Udyam details. Enter your enterprise, buyer and invoice details, and upload your Udyam certificate, invoices, delivery proof and agreement. The portal sends the application to the Facilitation Council for the relevant state, which issues notices to both sides.

How long does the Facilitation Council take?

The law sets 90 days for conciliation and, under the 2026 amendment, outer limits for mediation, referral and award. In practice, Crisil reported on 14 August 2026 that about 16% of applications had been unresolved for over a year. Rajasthan's nine councils averaged 1,767 applications each. Plan for months, and possibly more than a year.

Can I register on Udyam after an invoice is overdue?

You can register at any time, but it may not help the old invoice. Silpi Industries and Mahakali Foods point to registration at the time of the contract. NBCC (India) doubted that view in 2025 and referred it to a three-judge bench, whose answer we could not find. Register before the next contract and keep your old claim on record.

Does Udyam registration give collateral-free loans?

It makes you eligible for the CGTMSE guarantee, which can support collateral-free loans for eligible micro and small enterprises, up to ₹10 crore per the SBI page. It does not oblige a bank to lend. The bank decides on your credit record and cash flow, and a guarantee fee applies.

Do I need GST registration for Udyam registration?

The portal says PAN and GSTIN are mandatory from 1 April 2021 as per CGST Act applicability. If you are required to hold a GSTIN, you must give it. If you are not, you may be able to register with PAN, or through the Udyam Assist Platform if you are an informal micro enterprise. We could not confirm every combination on the portal.

Is Udyam registration mandatory?

Registration is not a legal licence and, under the 2026 amendment, filing is described as free and voluntary for all MSMEs. It is still the gateway to the CGTMSE guarantee, TReDS and Facilitation Council recourse. In practice, if you sell on credit to businesses, treat it as necessary.

What to do next

1. List your top ten customers by unpaid amount and note each invoice's delivery date and agreed terms.
2. Check that your Udyam registration shows the right category, and that your PAN-linked GST and income tax data match what you declared.
3. Update your invoice template with your Udyam number, payment days from acceptance, the deemed acceptance line and the Section 16 interest line.
4. Set reminders at day 30 and day 40, and a pre-31 March follow-up for all open invoices.
5. If you are the buyer, tag micro and small vendors in your books, schedule a payment run before 31 March, and check the MSME-1 date of 31 October.

If you want help with Udyam registration, GST, bookkeeping or tax treatment of MSME payables, contact RegisCorp.

This post is general information, not legal or tax advice. Rules change, so check your facts with a qualified professional before you act.

Sources and what we could not verify

Sources used

• Udyam Registration portal: free, paperless registration, Aadhaar requirement, PAN and GSTIN rule from 1 April 2021, April 2025 classification limits, Udyam Assist Platform factsheet.
• PRS India, MSME Development (Amendment) Bill, 2026 (text): amendments to Sections 18, 18A, 19, 20, 21, 27 and 27A; Section 15A; no change to Sections 15 to 17.
• PRS India bill track page: passage dates and summary of features.
• Income Tax Department, Income-tax Act 2025: official home of the 2025 Act; we read Section 37 through Indian Kanoon and several commentaries.
• RBI press releases: the listing shows "Monetary Policy Statement, 2026-27, Resolution of the Monetary Policy Committee, October 5 to 7, 2026".
• MSME Samadhaan portal: where delayed-payment applications are filed. We could not open it directly, so statistics come from Crisil and LiveLaw.
• Crisil press release, August 2026: Samadhaan figures as of 14 August 2026.
• SBI, CGTMSE page: guarantee limit and fee table.

Other sources: Taxmann (classification, Section 15, the 2 July 2021 memorandum), ITAT Online, TaxGuru (Rajya Sabha reply of 21 July 2026), IMPRI, Lexplosion, LiveLaw, Mondaq and a few filing-service blogs. These are secondary.

What we could not verify

• The Gazette text and number of the April 2025 classification notification (S.O. 1364(E), 21 March 2025). We relied on Taxmann and the Udyam portal figures.
• The RBI Bank Rate of 5.75% after 7 October 2026. The repo rate rise to 5.50% is widely reported, but we could not read the rate table in the RBI resolution. If the Bank Rate differs, change the 17.25% in our example to three times the correct rate.
• Whether the 2026 amendment is in force, in whole or in part. Sources conflict and we found no confirming notification on 9 October 2026.
• The exact wording of Section 15, 16 and 22 of the MSMED Act. We relied on commentaries for the acceptance and deemed acceptance rules.
• How the bank rate is applied when it changes during a delay, and whether interest is computed on the GST-inclusive amount.
• Whether a purchase unpaid at 31 March but still within the 15 or 45 days is safe from disallowance. This is a common practitioner reading and we found no official source.
• Whether a trader supplier, or a UAP-only enterprise, is protected under Section 15 and Section 43B(h).
• Whether set-offs and credit notes count as "actual payment" under Section 43B(h) or Section 37(2)(g).
• The Supreme Court ruling on whether registration must precede the contract. The three-judge bench decision after NBCC (India) was not found.
• The limitation period for Facilitation Council claims. We understand it to follow the Limitation Act and generally to be three years.
• MSME-1 penalty amounts and due dates, and Form 3CD clause numbering. These come from commercial blogs.
• The reduced trademark fee for small enterprises and the CGTMSE guaranteed share of the loan.
• The 25% procurement policy as currently amended, which we read in a public-sector FAQ.
• Whether works contracts fall outside the Act.