Payment Terms Legislation In India

The Micro, Small and Medium Enterprises Development (MSMED) Act 2006 limits payment terms to SMEs to 45 days and has penalties including fines and imprisonment. Firms dealing with SMEDs are required to report to the government on the amount and reasons for late payment.

The Indian government’s e-marketplace for government procurement currently requires payment of suppliers within 10 days.

The default interest rate for late payments to small and medium sized companies under the MSMED Act 2006 is three times the bank rate of the Reserve Bank of India. In the absence of other statutory interest rates civil litigation caps interest at the rate agreed in contract or a market rate which is generally in line with the rates charged by commercial banks.