Free tool
Late payment interest calculator (MSMED Act)
Enter the amount, the due date and the date it was paid. See the interest a micro or small supplier can claim: three times the RBI bank rate, compounded every month.
Interest due
₹ 21,874
Amount plus interest
₹ 5,21,874
Runs fully in your browser. Nothing is sent anywhere. This is a guide, not legal or tax advice: check with your CA.
How the interest is worked out
Section 16 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 says a buyer who pays a micro or small supplier late must pay compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India. Interest runs from the day after the due date until the day of payment.
- Rate: three times the bank rate. At 5.75%, that is 17.25% a year, or 1.4375% a month.
- Full months: interest is added to the amount at the end of every full month late. A month is counted from the due date to the same date next month (the last day of a shorter month).
- Extra days: for days after the last full month, this calculator adds simple interest at the yearly rate × days ÷ 365.
Example
An invoice of Rs 5,00,000 was due on 15 August 2026 and paid on 15 November 2026, exactly 3 months late. At 17.25% a year compounded monthly, the interest is about Rs 21,874, so the supplier can claim Rs 5,21,874 in all (an example at a bank rate of 5.75% for the whole period; the Bank Rate was 5.50% until 7 October 2026).
Official sources: RBI Monetary Policy Statement, 7 October 2026 (bank rate), Ministry of MSME and MSME Samadhaan (delayed payments).
SmartWorker shows an MSME pay-by date on purchase orders from suppliers you mark as MSME
Questions
Who can claim this interest?
A supplier that is a micro or small enterprise registered on Udyam can claim it from a buyer who pays after the pay-by date: 15 days from acceptance without a written agreement, or the agreed date (at most 45 days) with one. Check with your CA for your case.
Why three times the bank rate?
Section 16 of the MSMED Act, 2006 sets the interest at three times the bank rate notified by the Reserve Bank of India, compounded with monthly rests. With the bank rate at 5.75%, that is 17.25% a year.
Can the buyer claim this interest as an expense?
No. Section 23 of the MSMED Act says this interest is not allowed as a deduction when the buyer works out income tax. Check with your CA.
Which bank rate should I use?
We have filled in 5.75%, the RBI Bank Rate from 7 October 2026. RBI can change it at any policy meeting, so check rbi.org.in and type the new value if it has changed. The Act says ‘the bank rate notified by the Reserve Bank’ but does not say which date’s rate applies if it changed while the payment was late. Ask your CA.
Last updated 18 October 2026. Bank rate used: 5.75% from 7 October 2026.
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