A Guide to Filing for MSMEs in India

1.Introduction

Ensuring transparency and timely payments from your clients is crucial for your business’s health. This is where Form MSME-1 comes in.

This blog serves as your one-stop guide to understanding Form MSME-1, its filing requirements, and the importance of timely submissions under the MSME Development Act, 2006.

2. What is Form MSME-1?

Form MSME-1 is a half-yearly return mandated by the Ministry of Corporate Affairs (MCA) for specified companies that have obtained goods or services from MSME suppliers. This form essentially requires companies to disclose any outstanding payments owed to MSMEs.

3. Data Point

A 2023 survey by the Federation of Indian Micro and Small & Medium Enterprises (FISME) revealed that over 40% of MSMEs in India face delays in receiving payments from their clients.

Form  aims to bridge this gap by promoting timely payments and ensuring financial stability for MSMEs.

3. Who Needs to File Form MSME-1?

The requirement to file Form MSME-1 applies to the following companies:

• 3.1 Any company registered under the Companies Act, 2013 (including Limited Liability Companies or LLPs).
• 3.2 Public Sector Undertakings (PSUs).
• 3.3 Government departments (except for those exempted by the central government).
• 3.4 Societies registered under the Societies Registration Act, 1860.
• 3.4 Limited Liability Partnerships (LLPs).

Here’s a simple way to determine your filing obligation:

• 3.5 If your company procures goods or services from  suppliers, YOU MUST FILE Form MSME-1.
• 3.6 If your company only deals with other large companies and doesn’t engage MSMEs as suppliers, you are NOT required to file Form MSME-1.

4. Understanding Key Filing Concepts

• 4.1 Outstanding Payment: This refers to any amount due to an  supplier that has not been paid within the stipulated timeframe.
• 4.2 Appointed Date: This signifies the 15th day from the date the MSME supplier accepts the goods or services.
• 4.3 Credit Period: The period granted by the seller (MSME) to the buyer (company) to settle the payment. This period should not exceed 45 days from the appointed date as per the MSMED Act.

Here’s an example to illustrate:

• 4.4 On January 1st, 2024, your company receives a shipment of raw materials from an MSME supplier.
• 4.5 The MSME supplier accepts the delivery on January 1st, 2024.
• 4.6 The appointed date for payment would be January 15th, 2024.
• 4.7 As per the Act, any outstanding amount beyond February 14th, 2024 (45 days from the appointed date) would be considered a delayed payment requiring disclosure in Form MSME-1.

5. Steps to File Form MSME-1: A Practical Guide

Filing Form MSME-1 can be done electronically through the MCA portal. Here’s a step-by-step breakdown:

• 5.1 Register on the MCA Portal: If you haven’t already, register your company on the MCA portal using your Corporate Identification Number (CIN).
• 5.2 Access Form MSME-1: Once logged in, navigate to the “e-Forms” section and locate Form MSME-1.
• 5.3 Company Details: Enter your company’s CIN, Global Location Number (GLN) (if applicable), and Permanent Account Number (PAN).
• 5.4 Supplier Information: Provide details of the MSME suppliers, including their names, PAN numbers, and the outstanding amount due to each.
• 5.5 Reason for Delay (Optional): If the payment delay exceeds 45 days, you can optionally explain the reasons for the delay in the designated section.
• 5.6 Supporting Documents (Optional): While not mandatory, you can attach relevant documents like copies of invoices or purchase orders to support your filing.
• 5.7 Verification and Submission: Carefully review the entered information and submit the form electronically. Upon successful submission, you’ll receive a confirmation message and a filing reference number (FAN) for your records.

6. Advanced Considerations and Strategies for Filing Form MSME-1

• 6.1 Data Integration and Automation:
  • 6.1.1 ERP System Integration: Explore integrating your Enterprise Resource Planning (ERP) system with the MCA portal.
  • 6.1.2 Data Analytics Tools: Utilize data analytics tools to analyze your supplier data and identify potential delays in payments.
• 6.2 Internal Controls and Processes:
  • 6.2.1 Standardized Payment Terms: Establish clear and standardized payment terms within your company.
  • 6.2.2 Internal Approval Workflows: Implement internal approval workflows for supplier invoices.
• 6.3 Addressing Delayed Payments:
  • 6.3.1 Late Payment Interest: Familiarize yourself with the interest calculation formula.
  • 6.3.2 Dispute Resolution: Document communication and attempts to resolve issues with MSME suppliers.
• 6.4 Emerging Trends and Technologies:
  • 6.4.1 Blockchain Technology: Explore potential integration with Form MSME-1 filing for enhanced transparency.
  • 6.4.2 Open Network for Digital Commerce (ONDC): Stay informed about initiatives like ONDC that may impact Form MSME-1 filing.
• 6.5 Staying Updated:
  • 6.5.1 MCA Notifications: Monitor MCA updates for changes in Form MSME-1 filing requirements.
  • 6.5.2 Industry Associations: Engage with industry associations for guidance on compliance.
• 6.6 Data Security and Privacy:
  • 6.6.1 Record Keeping and Audit Trails: Maintain robust records and ensure data security measures are in place.
• 6.7 Penalties for Non-Compliance:
  • 6.7.1 Staying Compliant: Avoid penalties by filing Form MSME-1 accurately and on time.

7. Resources for Further Information

• 7.1 Ministry of Corporate Affairs (MCA) Website: Provides access to the MCA portal for filing Form MSME-1 and relevant notifications.
• 7.2 Office of the Development Commissioner for MSMEs: Offers information and resources related to MSMEs in India.
• 7.3 Federation of Indian Micro and Small & Medium Enterprises (FISME): Industry association representing MSMEs in India, offering insights on Form  compliance.
• 7.4 Chartered Accountants/Company Secretaries: Consult with qualified professionals for expert advice on Form filing procedures.