Who is an MSME
| Category | Investment in plant and machinery | Turnover |
|---|---|---|
| Micro | Up to ₹2.5 cr | Up to ₹10 cr |
| Small | Up to ₹25 cr | Up to ₹100 cr |
| Medium | Up to ₹125 cr | Up to ₹500 cr |
Limits from 1 April 2025; both tests must be met. The payment protections below cover micro and small suppliers with Udyam registration, not medium ones.
Buyer obligations under the MSMED Act
| Section | Obligation |
|---|---|
| s.15 | Pay by the agreed date, never more than 45 days from acceptance (or deemed acceptance) of goods or services. With no written agreement, 15 days. |
| s.16 | Late payment carries compound interest with monthly rests at three times the RBI bank rate, from the date payment fell due. |
| s.17 | The buyer owes the principal and the s.16 interest. |
| s.18 | The supplier can refer the dispute to the Micro and Small Enterprises Facilitation Council (via the MSME Samadhaan portal): conciliation, then arbitration. |
| s.19 | To challenge an award in court, the buyer must first deposit 75% of the amount awarded. |
| s.22 | Annual accounts must disclose principal and interest unpaid, interest paid, and interest accrued and remaining unpaid. |
| s.23 | Interest under s.16 is not deductible for income tax. |
Income-tax disallowance
Under s.43B(h) of the 1961 Act (from assessment year 2024-25), an expense owed to a micro or small enterprise and paid after the s.15 time limit is deductible only in the year it is actually paid. The Income-tax Act 2025 carries this forward as s.37(2)(g) from tax year 2026-27. Any MSME payable still overdue at 31 March is added back in the tax computation and the tax audit report.
MSME-1 return
- Who files: every company with dues to micro or small suppliers outstanding more than 45 days from acceptance.
- When: 30 April for October to March; 31 October for April to September.
- What: supplier-wise amounts due, date from which due, and reasons for delay, in the format revised on 15 July 2024 (S.O. 2751(E)).
- Penalty: s.405(4): ₹20,000 plus ₹1,000 a day, on the company and officers in default.
- Schedule III: trade payables split into MSME and others with ageing, plus the s.22 disclosures.
TReDS
Companies with turnover above ₹250 cr, and all CPSEs, had to register on a Trade Receivables Discounting System platform by 31 March 2025 (S.O. 4845(E), 7 November 2024). Registration alone is the obligation; the 2026 amendment makes settlement through TReDS mandatory for CPSEs and other notified buyers.
MSMED (Amendment) Act 2026 verify
Received assent in August 2026. Reports differ on whether it is in force from assent or from notified dates. Reported changes:
- More than one Facilitation Council per state; mediation within 90 days, arbitration referral within 30 days after that, award within 90 days of pleadings closing.
- New s.18A: awards recoverable as arrears of land revenue and treated as debt under the IBC.
- s.19: the 75% pre-deposit stays, but the court must release 50% to the supplier if the challenge is pending more than 6 months.
- TReDS settlement mandatory for CPSEs and notified buyers; new s.22A reporting.
- Graduated penalties from a warning up to ₹50,000.
- No change reported to the 45-day limit or the interest rate; confirm against the gazette text.
Running it on a finance desk
- Flag every vendor in the master with Udyam number and category; re-check at each financial year.
- Put the payment term (maximum 45 days) in every purchase order to micro and small vendors.
- Run a monthly ageing of MSME payables from the acceptance date, not the invoice date alone.
- At each half-year end, the ageing drives MSME-1; at year end it drives the s.22 note, Schedule III and the s.37(2)(g) add-back.
- Before an IPO, clear overdue MSME dues: the offer document discloses outstanding dues to MSMEs and material creditors.
Items marked verify rest on secondary sources or conflicting reports; check them against the primary text before relying on them. Items marked proposed are not law yet.