Udyam, MSME status and the 45-day payment rule every small firm should use
Registering as an MSME is free and takes minutes — and it unlocks a genuinely useful legal weapon: the right to be paid within 45 days, with penal interest if you are not.
Most small service firms treat MSME registration as paperwork for a bank loan and never finish it. That is a mistake, because Udyam registration is free, takes minutes, and quietly hands you one of the few legal levers a small supplier actually has: the right to be paid on time.
Udyam registration, in plain terms
Udyam is the government’s free, online, self-declaration MSME registration — no documents to upload; your PAN and GST data are pulled automatically. Service firms (consultancies, agencies, CA and IT firms) are eligible on the same basis as anyone else. Since April 2025 the size limits are: Micro up to Rs 2.5 crore investment and Rs 10 crore turnover; Small up to Rs 25 crore and Rs 100 crore; Medium up to Rs 125 crore and Rs 500 crore.
The 45-day rule
Under the MSMED Act, a buyer must pay a registered micro or small supplier by the agreed date and, in any case, within 45 days of accepting the goods or services (within 15 days if there is no written agreement). Miss it and Section 16 makes the buyer liable for compound interest, with monthly rests, at three times the RBI bank rate — with the bank rate at 5.50%, that is around 16.5% a year. A "no interest on delay" clause in the contract is void against this.
The rule with teeth: Section 43B(h)
The real pressure comes from income tax. Section 43B(h) says a buyer cannot claim a tax deduction for what it owes a registered micro or small supplier until it is actually paid, if payment runs past the MSMED time limit — and the usual "pay before the return due date" relief does not apply to this clause. In effect, paying a small supplier late costs the buyer a tax deduction, which is why 43B(h) did more to get small firms paid than the interest provision ever did.
How to use it
Register on Udyam (free), and put your Udyam number on your invoices so buyers know the clock and the tax consequence apply. If an invoice goes badly overdue, the MSME Samadhaan portal lets you file a delayed-payment complaint to the state facilitation council. The protection covers registered micro and small suppliers — which is the whole reason to register.
The takeaway
Udyam registration is free and self-declared. Registered micro and small firms get a 45-day payment right, 3x-bank-rate interest on delay, and — most usefully — the 43B(h) tax rule that makes paying you late expensive for your buyer. Register, and put the number on your invoices.
General awareness only, accurate to the best of our research as of August 2026 — not tax or legal advice. The protection applies to registered micro and small enterprises (not medium); an MSMED (Amendment) Act, 2026 was passed but not yet in force, and Section 43B(h) continues under the Income-tax Act, 2025 from FY 2026-27 (as Section 37(2)(g)). Verify the current position with your CA.
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