Introduction
In a significant move to ensure financial discipline and timely payments to Micro and Small Enterprises (MSEs), the Ministry of Micro, Small and Medium Enterprises (MSME) has announced a new compliance requirement for companies. CaptainBiz supports businesses in navigating these regulatory changes efficiently.
According to recent reports, over 60% of MSMEs in India face delayed payments, severely affecting their cash flow and sustainability. To tackle this persistent issue, the government now requires all companies that procure goods or services from MSEs to file half-yearly returns detailing any payment delays exceeding 45 days. This regulatory change aims to curb chronic payment delays and strengthen the working capital cycles of India’s thriving MSE sector.
This development is crucial, given that MSMEs form the backbone of India’s economy, contributing significantly to industrial output, employment generation, and GDP growth. Let’s explore the implications, scope, and action points of this new requirement.
Read More: Govt Eyes Rs 1-1.5 Lakh Crore Credit Cover for MSMEs Under New Scheme in FY26
Why the Government Introduced This Directive
Payment delays have long been one of the most pressing issues faced by MSMEs. Many small businesses suffer from cash flow disruptions due to delayed payments, particularly from large corporations and government undertakings. Industry reports suggest that some payments stretch beyond 120 days or more, causing financial distress.
To combat this, the Ministry of MSME has aligned the directive with Section 15 of the MSME Development Act, 2006, which already mandates that buyers must settle payments within 45 days of receiving goods or services. The new compliance rule strengthens this law by making delayed payments publicly reportable, adding a layer of accountability.
What the New MSME Payment Rule Mandates
1. Mandatory Half-Yearly Reporting
All companies purchasing from registered MSEs and delaying payments beyond 45 days must submit a half-yearly return to the Ministry of Corporate Affairs (MCA). This return must include:
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- The total outstanding amount to MSE suppliers.
- The number of delayed transactions.
- Reasons for each delay.
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Reporting Deadlines:
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- April to September (to be filed in October)
- October to March (to be filed in April)
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This measure introduces greater transparency and accountability in corporate procurement. CaptainBiz helps businesses streamline compliance with automated reporting tools.
Legal Backing: MSMED Act, 2006 & Income Tax Act, Section 43B(h)
This directive is not just a policy update—it has strong legal reinforcement.
1. MSMED Act, 2006 (Sections 15-24)
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- Payments to MSEs must be made within 45 days.
- If delayed, buyers must pay compound interest with monthly rests on the outstanding amount.
- The interest rate is three times the RBI bank rate, making delays financially burdensome.
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2. Section 43B(h) of the Income Tax Act (Effective April 1, 2024)
To further enforce compliance, the government has amended the Income Tax Act. Under Section 43B(h):
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- Delayed payments beyond 45 days cannot be claimed as a tax-deductible expense.
- This increases the cost of delayed payments for companies, acting as a double deterrent—financial and reputational.
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Read More: Presumptive Income Taxation Scheme for Business and Professionals
How This Affects Indian Businesses
This compliance rule has far-reaching implications:
Who Will Be Affected?
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- Large Corporations → Need to tighten their procurement processes.
- Startups & MSMEs (as buyers) → Must ensure timely payment if sourcing from MSEs.
- Auditors & Accountants → Must ensure accurate reporting under MCA and tax laws.
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Consequences of Non-Compliance
Companies failing to adhere to these rules could face:
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- Penalties & regulatory scrutiny.
- Tax disallowances, increasing their financial burden.
- Reputational damage, affecting credibility with investors and business partners.
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Tools Available for MSMEs: The SAMADHAAN Portal
To empower MSMEs, the government has strengthened the MSME SAMADHAAN portal (samadhaan.msme.gov.in). This platform allows MSEs to:
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- File complaints against defaulting buyers.
- Track case status in real-time.
- Seek resolution via the Micro and Small Enterprises Facilitation Council (MSEFC).
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With thousands of cases already filed, the portal is proving to be an essential tool for grievance redressal. CaptainBiz also offers dedicated solutions to help MSMEs manage their payments efficiently.
Actionable Steps for Businesses to Ensure Compliance
If your company engages with MSE vendors or suppliers, here’s what you should do immediately:
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- Identify Registered MSE Vendors → Ensure your suppliers are listed on the Udyam portal (msme.gov.in).
- Track Payment Cycles → Monitor due dates to prevent exceeding the 45-day limit.
- Update ERP Systems → Implement automated checks to flag overdue payments.
- Prepare for Half-Yearly Filings → Assign a compliance officer or designate your finance team.
- Maintain Records → Document justifications for any delays and ensure proper communication with suppliers.
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CaptainBiz offers tailored solutions to automate payment tracking and compliance reporting, ensuring businesses stay ahead of regulatory requirements.
Conclusion: A Step Toward Financial Fairness for MSMEs
For years, MSMEs have struggled with payment bottlenecks and prolonged dues, often caused by larger business entities. This directive sends a clear message: financial discipline and fair trade practices are now mandatory, not optional.
By enforcing strict reporting requirements and integrating the MSMED Act with the Income Tax Act, the government has introduced both incentives and penalties. MSEs can now expect faster payments and better protection, while buyers must adopt tighter compliance measures to avoid financial and reputational risks.
It’s time for companies—big and small—to revisit their vendor payment cycles and ensure full compliance with this landmark policy change. CaptainBiz is here to assist businesses in adapting to this change seamlessly.
Frequently Asked Questions (FAQs)
1. What is the new MSME delayed payment reporting rule?
The government now mandates companies to file half-yearly reports with the Ministry of Corporate Affairs (MCA) if they delay payments to MSMEs beyond 45 days.
2. Who needs to comply with this rule?
Any company purchasing goods or services from registered Micro and Small Enterprises (MSEs) and failing to clear payments within 45 days must comply.
3. What are the deadlines for half-yearly reporting?
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April to September transactions → Report due in October
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October to March transactions → Report due in April
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4. What are the penalties for non-compliance?
Non-compliance can result in penalties, tax disallowances, regulatory scrutiny, and reputational damage.
5. How does Section 43B(h) of the Income Tax Act impact companies?
From April 1, 2024, delayed payments beyond 45 days cannot be claimed as a tax-deductible expense, increasing financial liabilities for defaulting companies.
6. How can MSMEs report delayed payments?
MSMEs can file complaints through the MSME Samadhaan Portal (samadhaan.msme.gov.in) to seek resolution.
7. How can CaptainBiz help businesses comply with this rule?
CaptainBiz provides automated solutions for payment tracking, compliance reporting, and regulatory adherence to help businesses meet legal requirements efficiently.
