Ministry of Corporate Affairs Tightens 45 Days Payment Reporting Of MSE Suppliers

New Delhi, Jul 17 (KNN) In a move to strengthen financial protections for Micro and Small Enterprises (MSEs), the Ministry of Corporate Affairs has issued a significant amendment to the reporting requirements for companies that delay payments to these smaller businesses.

The notification, released on July 15, 2024, introduces a revised MSME Form 1 that demands more detailed information fr0m buyers who fail to settle their dues within the mandated 45-day period.

The new regulations, part of the Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Amendment Order, 2024, build upon the foundation laid by the original order in 2019.

While the previous version of the form focused on basic details such as the amount due, the date fr0m which it was owed, and reasons for delay, the updated form seeks a more comprehensive breakdown of payment practices.

Key additions to the revised form include the amount paid within 45 days through the Trade Receivables Discounting System (TReDS) or other payment modes. Companies must also report the amount paid after the 45-day deadline, as well as outstanding amounts for 45 days or less.

Furthermore, they are required to disclose outstanding amounts exceeding 45 days, along with reasons for delay. The form now also mandates the inclusion of the name and Permanent Account Number (PAN) of the MSE supplier.

This enhanced transparency is designed to provide a clearer picture of payment behaviours and identify persistent offenders. Companies are required to submit this form bi-annually, with deadlines of October 31 for the April-September period and April 30 for the October-March period.

The government has maintained stringent penalties for non-compliance. Failure to pay within the 45-day timeframe can result in a fine of Rs 20,000 for the company and each officer in default. Continued violations may lead to additional penalties of Rs 1,000 per day, up to a maximum of Rs 3 lakh.

To ensure accountability, the form must be digitally signed by a high-ranking company official, such as a director, managing director, manager, company secretary, CFO, CEO, or an authorised representative. The signatory's Director Identification Number (DIN) or PAN must also be provided.

This regulatory tightening comes against the backdrop of persistent payment delays to MSEs. According to the government's MSME Samadhaan portal, out of 1.98 lakh delayed payment applications filed by MSEs, involving Rs 44,757 crore, only a fraction have been resolved.

The disposal rate by MSE Facilitation Councils stands at just 19.2 per cent, with 38,095 applications worth Rs 6,563 crore settled.

In a related development, the government introduced a new clause under Section 43B of the Income Tax Act on April 1, 2024. This provision allows MSME buyers to claim expenses only if payments are made within 45 days, aligning tax benefits with prompt payment practices.

As these new regulations take effect, it remains to be seen how effectively they will combat the deeply entrenched problem of delayed payments and whether they will succeed in providing much-needed relief to India's vital MSME sector.

(KNN Bureau)