An interest on late payment invoice format is a document billing a customer for interest on invoices paid, or still unpaid, after their due date. It lists each invoice, the due date, the payment date (or the date of calculation), days delayed, the rate and the interest amount. The rate is the contract rate or, for Udyam-registered micro and small suppliers, compound interest with monthly rests at three times the RBI bank rate under Section 16 of the MSMED Act. Under GST, interest for delayed payment is part of the value of supply (Section 15(2)(d)), and the time of supply is the date the interest is received.
Step 1: Interest demand statement (send first)
Because GST on late-payment interest becomes payable when the interest is received, many suppliers first send an interest demand statement, which is not a tax document, and issue the tax invoice or debit note when the customer pays or agrees. This keeps you from paying GST on interest you may never collect. Confirm the approach with your accountant.
[YOUR COMPANY NAME] [ADDRESS] | GSTIN: [YOUR GSTIN] | Udyam Registration No.: [UDYAM NO., if MSME] Date: [DATE] To, [CUSTOMER NAME] [CUSTOMER ADDRESS] GSTIN: [CUSTOMER GSTIN] Subject: Interest on delayed payment of invoices Dear Sir/Madam, The following invoices were paid, or remain unpaid, after their due dates. As per [clause [NO.] of our quotation / purchase order no. [PO NO.] / the terms printed on each invoice] [and / or Sections 15 and 16 of the Micro, Small and Medium Enterprises Development Act, 2006], interest is payable on the delayed amount. Invoice No. | Invoice date | Amount (Rs.) | Due date | Paid on / calculated to | Days delayed | Rate | Interest (Rs.) [INVOICE NO.] | [DATE] | [AMOUNT] | [DUE DATE] | [DATE] | [DAYS] | [RATE]% | [AMOUNT] [INVOICE NO.] | [DATE] | [AMOUNT] | [DUE DATE] | [DATE] | [DAYS] | [RATE]% | [AMOUNT] Total interest as on [DATE]: Rs. [TOTAL INTEREST] (Rupees [AMOUNT IN WORDS] only) Basis of calculation: [Simple interest at [RATE]% per annum as agreed] / [Compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, i.e. [RATE]% per annum, from the appointed day under Section 15 of the MSMED Act]. Interest continues to accrue on unpaid invoices until payment. Please pay the above amount by [DATE]. A tax invoice / debit note with applicable GST will be issued on receipt. For [YOUR COMPANY NAME] [AUTHORISED SIGNATORY], [DESIGNATION]
Step 2: Debit note or invoice for interest (on receipt or agreement)
When the interest is paid or agreed, bill it with GST at the rate of the underlying supply. Use the debit note format referencing the original invoices, or a tax invoice; FundRaksha Book lets you raise either against the original invoice.
DEBIT NOTE (Interest on delayed payment, Section 15(2)(d) CGST Act) Supplier: [YOUR COMPANY NAME], [ADDRESS], GSTIN [YOUR GSTIN] Debit Note No.: [DN NO.] Date: [DATE] Recipient: [CUSTOMER NAME], [ADDRESS], GSTIN [CUSTOMER GSTIN] Place of supply: [STATE NAME AND CODE] Original invoices: [INVOICE NOS. AND DATES] Description: Interest on delayed payment of the above invoices for the period [FROM] to [TO], as per interest demand dated [DATE] HSN/SAC: [AS PER ORIGINAL SUPPLY / ACCOUNTANT'S ADVICE] Interest (taxable value): Rs. [AMOUNT] CGST @ [RATE]% / SGST @ [RATE]% (or) IGST @ [RATE]%: Rs. [AMOUNT] Total: Rs. [AMOUNT] For [YOUR COMPANY NAME] Authorised signatory: ____________________
How to calculate the interest
- Fix the due date of each invoice: invoice date (or date of acceptance of goods) plus the agreed credit period. For MSMED Act cases, the appointed day is after the agreed period, which cannot exceed 45 days, or 15 days after acceptance where nothing was agreed.
- Count the days from the day after the due date to the date of payment, or to today for unpaid invoices.
- Apply the rate. Contract rate: simple interest unless the contract says otherwise. MSMED Act: three times the RBI bank rate, compounded monthly; use the MSME interest calculator.
- For non-MSME cases, the late payment interest calculator works out simple interest at the agreed rate.
- Show the working for every invoice. A single unexplained figure invites a dispute.
Common mistakes
- Claiming interest with no basis: no clause in the quotation, PO or invoice, and no MSMED registration. Courts may still award reasonable interest, but a written term is far stronger.
- Charging GST on the interest demand before it is received, and paying tax on money never collected.
- Waiving interest by accepting 'full and final' payments or signing a no dues certificate without excluding interest.
- Using the wrong start date: interest runs from the due date, not the invoice date.
Why billing interest helps you get paid
Interest is not only extra money. A buyer who sees interest accruing has a reason to pay the principal now, and an interest claim gives you room to negotiate: waiving part of the interest in exchange for immediate payment of the principal is a common, fair settlement. For micro and small suppliers, MSMED interest is a statutory right, it cannot be contracted away, and it is not deductible for the buyer under Section 23. The buyer's income-tax deduction for the purchase is also tied to timely payment under Section 43B(h).
If the buyer ignores both the principal and the interest, an advocate's notice usually follows; FundRaksha Legal handles MSME Samadhaan filing and notices on a 30% success fee, nothing upfront.
Last reviewed: 2026-10-20. Information for Indian businesses; not legal advice.