The OEM Pays in 90 Days: What the 45-Day Rule, Section 43B(h) and TReDS Do, and Don't Do, for a Medium Tier-2 (₹)
Does the MSME 45-day payment rule make an OEM pay a medium supplier on time? No. As of 20 Oct 2026, the 45-day cap, the interest penalty and section 43B(h) protect only micro and small suppliers. A medium plant (up to ₹125 crore investment and ₹500 crore turnover since 1 April 2025) gets none of them. TReDS is what works.
Last checked: 20 Oct 2026
By the Mama Editorial Team. For the promoter or MD of a 200–1000-person Tier-2 supplier that has outgrown "small". A summary of the law, not legal or tax advice; every ₹ figure in the worked example is a labelled assumption.
Key takeaways
- The 45-day rule is for micro and small only. Section 2(n) of the MSMED Act, 2006 defines a protected "supplier" as a micro or small enterprise; a medium enterprise is outside sections 15 to 23.
- 43B(h) does not cover you either. The Finance Bill 2023 Memorandum limits it to sums payable to micro or small enterprises, so an OEM's tax deduction does not depend on paying a medium supplier fast.
- It does cover what you owe. Your micro and small Tier-3 vendors keep the 45-day cap, interest at three times the RBI Bank Rate (17.25% a year at today's 5.75%) and the 43B(h) disallowance against you.
- TReDS is open to medium sellers. Only MSMEs can sell on TReDS, without recourse, per RBI; companies above ₹250 crore turnover had to get onboarded on TReDS by 31 March 2025.
- In the assumed example below, 90-day terms cost a medium Tier-2 about ₹1.9 crore a year more than 45-day terms, and TReDS discounting could trim about ₹92 lakh of that.
First, check which category your plant is in
Since 1 April 2025, MSME categories are set by S.O. 1364(E) of 21 March 2025, which amended the 2020 composite test of investment and turnover (Gazette of India, CG-DL-E-21032025-261838). An enterprise must stay within both limits for its category.
| Category | Investment in plant and machinery or equipment (₹ crore, up to) | Annual turnover (₹ crore, up to) | Covered by MSMED ss.15–23 and 43B(h)? |
|---|---|---|---|
| Micro | 2.5 | 10 | Yes |
| Small | 25 | 100 | Yes |
| Medium | 125 | 500 | No |
| Large | above 125 | above 500 | No |
Source: S.O. 1364(E); coverage column from MSMED Act s.2(n) and the 43B(h) sources below.
A 300–1000-person auto-component plant with ₹100–500 crore of turnover usually falls in the medium row. Your Udyam certificate shows the category buyers, banks and TReDS platforms read.
What the law gives a micro or small supplier
Every clause of the MSMED Act's delayed-payment chapter is written around the "supplier" (MSMED Act, 2006, WIPO Lex copy of the Gazette).
Section 15, the 45-day cap. The buyer must pay on the date agreed in writing, and the agreed period cannot exceed 45 days from acceptance or deemed acceptance. With no written agreement, payment is due within 15 days.
Section 16, the interest. A buyer who pays late owes compound interest with monthly rests at three times the Bank Rate notified by RBI, whatever the contract says.
The rate today. RBI's home page showed a Bank Rate of 5.75% when checked on 20 October 2026 (RBI current rates). Three times that is 17.25% a year, compounded monthly.
Sections 18 and 19, the Facilitation Council. A dispute goes to the state's Micro and Small Enterprises Facilitation Council; a buyer challenging its award in court must first deposit 75% of it.
Sections 22 and 23. An audited buyer must disclose unpaid dues to suppliers in its accounts, and section 16 interest is not tax-deductible.
Section 43B(h) of the Income-tax Act, 1961. The Finance Act 2023 made any sum payable to a micro or small enterprise beyond the section 15 limit deductible only when actually paid, from assessment year 2024-25 (Memorandum explaining the Finance Bill 2023, Ministry of Finance). The usual grace of paying by the return due date does not apply.
The new Income-tax Act keeps it. The Income-tax Act, 2025, in force from 1 April 2026 under its section 1(3), carries the rule in section 37(2)(g), and section 37(3) again excludes it from the return-due-date grace (Gazette of India, CG-DL-E-22082025-265620, text as enacted).
Why none of it reaches a medium plant
The definition shuts the door. Section 2(n) of the MSMED Act reads: "'supplier' means a micro or small enterprise, which has filed a memorandum". Sections 15 to 23 protect only that supplier.
The ministry says the same. DC-MSME's note says "any micro or small enterprise" with valid registration can apply to the Facilitation Council (DC-MSME, delayed payments). No medium route exists.
The tax rule follows the Act. Section 43B(h), and now section 37(2)(g), speak of a sum payable "to a micro or small enterprise". An OEM that pays a medium Tier-2 on day 90 loses no deduction.
The 2026 amendment does not change this. The MSMED (Amendment) Bill, 2026 was introduced in the Rajya Sabha on 28 July 2026, passed there on 3 August and in the Lok Sabha on 7 August 2026 (PIB, Ministry of MSME, 7 August 2026). In the Bill text, clause 2 inserts clause (da) and amends clauses (g), (h), (j) and (m) of section 2, and leaves clause (n), the supplier definition, untouched (Bill No. LXXII of 2026, PRS copy, checked 20 Oct 2026).
What the amendment does add. Per the PIB explainer of 11 August 2026: 90-day timelines for Council mediation and awards, and awards recoverable as arrears of land revenue, still for micro and small suppliers. Each provision starts on a date the Centre notifies.
How crowded the micro and small route already is. As on June 2026, the MSME Samadhaan portal had received 2,56,892 delayed-payment applications from micro and small enterprises, with claims worth ₹55,244.29 crore, and Facilitation Councils had disposed of 58,148 of them, per a PIB backgrounder of 26 June 2026.
What a medium plant is left with. The purchase order and ordinary contract law, so the interest-on-delay clause you negotiate is what counts. Insolvency has a high bar: the minimum default under section 4 of the Insolvency and Bankruptcy Code is ₹1 crore, per S.O. 1205(E) of 24 March 2020.
Where the same rules bite a medium Tier-2: as a buyer
Your micro and small vendors (heat treaters, platers, job-work shops) are still "suppliers" under section 2(n). Pay them on day 90 to match the OEM and three things follow:
- Interest accrues by law. Section 16 interest at 17.25% a year, compounded monthly, runs from the day after the agreed date, claimable before the Facilitation Council.
- Your tax deduction moves. Under 43B(h), purchases from those vendors unpaid beyond their limit at year end are deductible only in the year you pay.
- The interest is not deductible. Section 23 of the MSMED Act bars it.
TReDS: the lever that does work for a medium seller
Who can use it. RBI's TReDS FAQ says "only MSMEs can participate as sellers", which includes medium enterprises; buyers can be corporates, government departments and PSUs (RBI, FAQs on TReDS).
How it works. Financiers bid on a buyer-accepted invoice (a factoring unit), the winner pays the seller, and the buyer pays the financier on the due date, per the same FAQ.
Without recourse. If the buyer defaults, the MSME seller does not repay the financier: TReDS transactions are "without recourse" to MSMEs, per RBI.
Your OEM is already on it. S.O. 4845(E) of 7 November 2024 requires every company registered under the Companies Act, 2013 with turnover above ₹250 crore, and every CPSE, to get onboarded on TReDS platforms, with onboarding to be completed by 31 March 2025 (Gazette of India, CG-DL-E-07112024-258523).
But only onboarded. The notification says "onboarded" and nothing more. No requirement for a private company to accept or settle invoices through TReDS appears in S.O. 4845(E) (checked 20 Oct 2026).
Routing is mandatory only for public buyers so far. New section 15A in the 2026 Bill makes every CPSE route MSME invoices through TReDS and lets the Centre extend that by notification to "any other authority, body, or entity". We found no such notification for private companies (checked 20 Oct 2026).
You may be a buyer too. A medium enterprise can turn over up to ₹500 crore, so a Tier-2 company above ₹250 crore falls under the same onboarding instruction for its own purchases.
The market is big enough. Invoices discounted on TReDS rose from ₹40,000 crore in 2022-23 to ₹3.47 lakh crore in 2025-26, per the PIB explainer. In August 2026, five platforms financed 1,64,261 factoring units worth about ₹34,970 crore, per RBI's entity-wise TReDS statistics.
The rate is bid, not published. RBI's monthly TReDS statistics carry no discount rate (checked 20 Oct 2026). The OEM repays the financier, so the bid follows the OEM's credit; ask two or three platforms for indicative bids on your top buyer.
Worked ₹ example: one medium Tier-2, both sides of the squeeze
Every input is an illustrative assumption.
| Line | Assumption or result | ₹ crore |
|---|---|---|
| Annual sales to OEMs | assume | 150 |
| Receivables at 90-day terms (150 × 90 ÷ 365) | result | 37.0 |
| Receivables at 45-day terms (150 × 45 ÷ 365) | result | 18.5 |
| Cash-credit rate | assume 10.5% a year | — |
| Carrying cost at 90 days (37.0 × 10.5%) | result | 3.88 a year |
| Carrying cost at 45 days (18.5 × 10.5%) | result | 1.94 a year |
| Extra cost of 90-day terms | result | 1.94 a year |
| TReDS discount on OEM-accepted invoices | assume 8.0% a year | — |
| Cost of discounting the 90-day book (37.0 × 8.0%) | result | 2.96 a year |
| Saving vs cash credit | result | 0.92 a year |
| Purchases from micro and small vendors | assume | 40 |
| Overdue if you pay them at 90 days instead of 45 (40 × 45 ÷ 365) | result | 4.93 |
| Section 16 interest exposure (17.25% compounded monthly ≈ 18.7% a year) | result | 0.92 a year |
| Tax paid earlier if that ₹4.93 crore is unpaid beyond its limit at 31 March (assume 25% tax rate) | result | 1.23 (timing) |
Sell side: 90-day terms cost this assumed plant about ₹1.9 crore a year; TReDS at the assumed rate trims about ₹92 lakh and frees ₹37 crore of cash-credit limit. Buy side: passing the delay to micro and small vendors creates about ₹92 lakh a year of non-deductible interest exposure and pulls ₹1.23 crore of tax into the earlier year.
The result turns on the TReDS rate, platform fees and whether the OEM accepts your factoring units.
What to do this quarter
- Confirm categories. Yours and every vendor's; flag micro and small vendors in the vendor master.
- Pay protected vendors on time. Inside their agreed period, which cannot exceed 45 days.
- Register as a TReDS seller on the platforms your OEMs use.
- Ask each OEM's purchase head to accept factoring units. The OEM is already onboarded under S.O. 4845(E) and still pays on the same due date.
- Price terms into the quote. Treat 90 days as a cost line, as in our contribution test for low-rate jobs.
- Shorten your own clock. Finished parts sitting unpacked or uninvoiced add days before the OEM's clock even starts; the auto-component opportunities overview and the WIP cash calculator price that stock.
What cameras can and cannot tell you here
Cameras cannot see payment terms, invoices, Udyam categories or TReDS bids.
Cameras can show the physical half of the cash cycle: parts waiting for packing, trucks waiting at the dock, castings unmoved for weeks. Our pages on yard stock cash and working capital stuck on the floor show how to count it.
Where Mama fits
Mama reads a factory's existing cameras and each morning sends the owner a short plain-language note on where hours and money leaked yesterday: idle machines, long setups, stock that did not move. It watches machines and flows, not individuals. Leave an email or phone in the form below and Mama will get back to you.
FAQ
Does the MSME 45-day payment rule apply to a medium enterprise? No. Section 15 protects a "supplier", which section 2(n) of the MSMED Act defines as a micro or small enterprise.
Does section 43B(h) cover payments to a medium supplier? No. Per the Finance Bill 2023 Memorandum, it covers sums payable to micro or small enterprises only. It does apply to what you owe micro and small vendors.
Can a medium enterprise sell invoices on TReDS? Yes. RBI's FAQ says only MSMEs can be sellers, and the financing is without recourse to the seller.
Is my OEM obliged to pay me through TReDS? Not under S.O. 4845(E), which requires companies above ₹250 crore turnover only to get onboarded. Routing is mandatory for CPSEs under the 2026 amendment.
What interest can a micro or small vendor charge me for paying late? Compound interest with monthly rests at three times the RBI Bank Rate: 17.25% a year at the 5.75% rate shown on 20 October 2026, and not tax-deductible.