Complying with MSME Vendor Regulations in India

MSME Vendor Compliance Overview

Timely Payment (Section 15, MSMED Act)

• Pay within 45 days from acceptance of goods/services or agreed date.
• Delayed payments attract 3x RBI bank rate interest (compound, monthly rests).
• Non-deductible interest under Income Tax Act.

MSME Form I Filing (MCA Order, 2019)

What is it?

A form that companies must file if they haven’t paid MSMEs within 45 days.

Who needs to file?

Any company that buys from MSMEs and delays payment.

When to file?

For April–September → by October 31

For October–March → by April 30

What information is needed?

• Supplier Name and PAN details
• To which suppliers the payment was made within 45 days, paid after 45 days
• To which supplier the payment is outstanding for 45 days or less, outstanding for 45 days or more.
• Reason for the delay.

MSME Form-1 Filing Process

Verify MSME Status

• Check Udyam Registration Number to confirm Micro/Small/Medium status. (Generally
• mentioned in the invoice of the Vendor)
• Maintain vendor database for
• compliance tracking.

Penalties for Not Filing

What happens if you don’t file?

• Fine up to ₹20,000, applicable to company and every officer in default
• In case of ongoing non-compliance, an additional fine of ₹1,000 per day is imposed on both the company and every officer in default subject to a maximum limit of ₹3L.

MSME Vendor Compliance Overview

Annual Disclosures (Section 22, MSMED Act)

• Report unpaid MSME dues, interest, and delay reasons in Board’s Report/Financial Statements.
• Ensure accurate records for audit compliance.

Dispute Resolution (MSEFC)

• Refer payment disputes to Micro and Small Enterprises Facilitation Council (MSEFC).
• Resolution within 90 days; appeals require 75% deposit of awarded amount.

Other Compliances

• TDS: Deduct applicable TDS as per Income Tax Act.
• GST: Ensure proper invoicing and timely returns for MSME vendors.
• RBI: Report MSME dues to banks for credit monitoring.

Best Practices

• Track payments to clear dues within 45 days.
• File MSME Form I on time via MCA portal.
• Engage professionals (CA/CS) for compliance.
• Build strong vendor relationships through timely payments.