Archive · 17 Nov 2025
India Eyes New Penalties for Delayed MSME Payments
India's government is thinking about making new rules to help small businesses that make things for bigger companies.
Sometimes, these bigger companies don't pay the small businesses for a very long time.
This makes it hard for the small businesses to buy more materials or pay their workers.
The government wants to make the bigger companies pay extra money as interest or a big fine if they don't pay on time.
They are looking at rules from other countries too, where businesses have to pay much faster.
They also want companies to tell everyone how long they take to pay their small business partners.
India's government is considering new measures to penalize delayed payments to MSMEs.
Proposed measures include automatic interest accrual after 45 days and a potential 2% turnover levy on large defaulters.
Current regulations require MSMEs to file complaints to trigger penalties and interest.
New tax rules disallow expenses for payments delayed beyond 45 days starting April 1, 2024.
Government is studying global best practices from countries like the Netherlands, EU, and UK for payment timelines.
- Who
- The Indian Central Government (MSME and Finance Ministries)
- What
- Considering new measures including interest and penalties to ensure timely payments to Micro, Small, and Medium Enterprises (MSMEs).
- When
- Discussions are ongoing, with a meeting of the ministries expected this week. New tax rules take effect April 1, 2024.
- Where
- India
- Why
- To address the long-standing issue of delayed payments to MSMEs, which negatively impacts their cash flow and working capital.
Government Proposals
MSME Concerns and Current Situation
Enforcement of Late Payments
Government Proposals
The government is considering amending the MSMED Act to automatically accrue interest on overdue payments after 45 days unless a longer contract period is specified. A proposal also suggests a 2% turnover levy on large buyers for non-compliance.
MSME Concerns and Current Situation
MSMEs face significant delays, sometimes up to 180 days in infrastructure projects, impacting cash flow and increasing capital costs. Some MSMEs experience arbitrary settlements from e-commerce sites, and delays of 4-6 months from state government entities are common.
Existing Mechanisms vs. New Measures
Government Proposals
New measures aim for automatic interest accrual and penalties, moving away from the current system where complaints must be filed by MSMEs for penalties and interest to apply.
MSME Concerns and Current Situation
Current systems like MSME Samadhan for digital claims and MSEFCs for dispute resolution have not been as effective as intended. MSMEs are increasingly resorting to courts, as MSEFCs lack the power to compel large businesses to pay on time.
Global Benchmarks
Government Proposals
India is studying global regulations, such as those in the Netherlands, EU, and UK, which enforce strict payment terms (e.g., 30 days) and mandatory interest plus compensation for late payments.
MSME Concerns and Current Situation
Despite existing regulations and efforts, MSMEs continue to face significant payment delays. The cost of capital for MSMEs can inflate by 20-30% due to cash-flow gaps requiring borrowing at higher interest rates.
- Annual Delayed Payments to MSMEs
- ₹9 trillion
- Number of Registered MSMEs
- 71.4 million
- MSME Contribution to GDP
- 30%
- MSME Contribution to Exports
- 45%
- Mandatory Payment Period (MSMED Act)
- 45 days
- Tax Rule (Section 43B(h))
- Expenses for payments delayed beyond 45 days to MSMEs will be disallowed starting April 1, 2024.