Micro, Small, and Medium Enterprises (MSMEs) are the cornerstone of the Indian economy, playing a huge role in creating jobs, industrial output, and exports. MSMEs are spread across sectors like manufacturing, services, trading, and infrastructure, accounting for nearly 30% of India’s GDP and more than 45% of its exports. According to the updated criteria made available in 2020, MSMEs are characterised by their investments in plant, machinery, or equipment, and their turnover for the year. Such businesses are known for bringing about inclusive growth through the creation of opportunities for economically backward individuals and encouraging grassroots innovation. MSMEs also play a vital role in rural development, contributing to a decrease in economic inequality between urban and rural areas. Their flexibility and resilience allow them to respond quickly to altered market trends. In support of their expansion, the government has initiated a series of schemes, lending facilities, and legislation amendments, recognising the industry as a leading contributor to economic prosperity.
What is Form MSME-1?
MSME-1 is a return required by certain enterprises to be filed in accordance with the Enterprises Act of 2013 and the relevant notification issued by the Ministry of Corporate Affairs (MCA). This type is used to record payments due to Micro and Small Enterprises (MSEs) which have remained outstanding for over 45 days from the date of acceptance or presumed acceptance of goods or services. All businesses that make purchases of products or services from MSEs and are liable for paying these amounts have to fill up the MSME-1 in two parts: half-yearly returns between April and September (due by 31st October) and between October and March (due by 30th April).
The key purpose of the MSME-1 form is to ensure prompt payments to small businesses and to improve transparency in delayed payments. Non-compliance with this filing requirement can attract penalties under the Companies Act. The project has been introduced to strengthen the financial soundness of MSEs and safeguard them against cash flow problems emanating from delayed payments.
Applicability of Form MSME-1
Form MSME-1 can be used by all companies registered under the Firms Act, 2013 or 1956, i.e., private limited companies, public limited companies, and one-person companies, subject to the following conditions:
Conditions of Applicability:
For it to qualify, the company
- should have obtained products or services from a Micro or Small Enterprise (MSE) as per the MSMED Act of 2006, and
- should have a payment period of more than 45 days from the date of acceptance or deemed acceptance.
If both these criteria are met, the company has to file Form MSME-1.
Not applicable when:
- The supplier is not registered as a Micro or Small Enterprise.
- There are no overdue payments over 45 days.
- The company has not made purchases of goods or services from MSEs.
This report applies only to Micro and Small Enterprises and not Medium Enterprises as per the MSMED Act. Thus, the form ensures that buyers are made accountable and MSE suppliers get timely payment.
Objective and Purpose of MSME-1
The main aim of Form MSME-1 is to promote transparency and accountability in the relationships between corporations and Micro and Small Enterprises (MSEs), particularly on their payment obligations within proper timeframes. It aims to adhere to the payment schedules provided in the Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006, where it is a requirement that payments are made to MSEs within 45 days. Form MSME-1 is a regulatory tool intended to safeguard MSEs from financial distress, enhance the business environment, and foster a more hospitable environment for business.
- Prompt payment to MSMEs: Form MSME-1 intends to discourage firms from delaying payments to MSMEs, who often face cash flow problems and have poor access to credit.
- Foster Ethical Corporate Practices: Companies are required to make payment delay reports and to demonstrate accountability in their financial transactions with smaller suppliers.
- Policy Making Data Collection: The government uses this form to analyse payment delays impacting MSMEs, which informs more effective loan, recovery, and support strategies for the MSME sector.
- Enhance Legal Compliance: Filing Form MSME-1 helps enterprises comply with Section 405 of the Enterprises Act, 2013, and MCA notifications and reduce penalties and regulatory actions.
- Empower MSMEs: Small businesses gain greater visibility, legal support, and governmental protection in case of delayed payments by larger firms.
Contents of MSME-1
The data made available improves transparency of payments to Micro and Small Enterprises.
- Corporate Identity Number (CIN): It is the company’s unique identification number.
- Company information includes name, address, and email address for ease of identification and contact.
- Financial Year and Half-Year Period: The accounting period may be April to September or October to March.
- Roll call of MSE suppliers with overdue payments, along with their names and PAN numbers.
- Amount Due: Outstanding amount payable to each MSE.
- Due Date: This indicates when payment was due and is used to determine the 45-day threshold.
- Reasons for Payment Delay: The reasons behind the non-payment by the deadline by the company.
- Declaration and Certification: Signature on a director, CFO, or corporate secretary statement declaring the accuracy of information furnished.
How to File Form MSME-1 Online?
Submission of Form MSME-1 is required under Section 405 of the Companies Act, 2013 and January 22, 2019, MCA Notification. Filing of Form MSME-1 by companies following these steps carefully can ensure timely and accurate compliance with MSME-1 filing requirements.
1. Determine Applicability
Check if the company has received products or services from Micro or Small Enterprises (MSEs) and if the overdue dues have exceeded 45 days from the date of acceptance or deemed acceptance. The company is required to file MSME-1 only if both these conditions are met.
2. Collect Information
- CIN (Corporate Identification Number)
- Company name, address, and email ID
- PAN and supplier details (MSEs)
- Outstandings and due dates
- Reason for delay in payment
- Reporting period for which the return is being filed (April–September or October–March)
3. Download Form MSME-1
- Visit the MCA Portal
- Go to: Forms & Downloads → E-Forms → MSME-1
- Download the current version of the form in PDF format
4. Complete the Form
Complete all the mandatory fields correctly in the downloaded PDF form using Adobe Reader. Make sure there are no validation errors. Sign and submit the declaration and digital signature of the Director/Company Secretary/CFO.
5. Attachments
It is optional for companies to file supporting documents like a list of MSEs or board resolutions; there are no attachments that are compulsory by default.
6. Digital signature
Make sure a valid DSC (Digital Signature Certificate) is submitted for the signing authority (Director/CS/CFO). Ensure that the DSC is enrolled on the MCA portal.
7. Upload to the MCA Portal
Login to the MCA21 website using valid credentials. Go to the Upload e-Forms page. Choose the filled-in MSME-1 form and click on Upload. Pay the relevant fees (normally NIL) and submit.
8. Acknowledgement
After successful submission, an SRN (Service Request Number) will be created. Track the status with the SRN. Keep the acknowledgement receipt for reference.
Fees and Due Dates
There is no government filing fee required for filing Form MSME-1 through the MCA portal. It is a zero-fee form, regardless of the size or type of company. There might be professional fees if filed through a Company Secretary or consultant.
Form MSME-1 must be filed twice a year by companies with outstanding payments to Micro and Small Enterprises (MSEs) of over 45 days:
- File by October 31st for the period April-September.
- File by April 30th for the period October-March.
Non-filing within the due date may attract penalties under Section 405 of the Companies Act, 2013, including fines on the company and its officers.
Consequences of Non-Compliance
Failure to adhere to the filing requirements of Form MSME-1 attracts penalties under Section 405(4) of the Companies Act, 2013. If a company fails to file the form within the prescribed period, both the company and defaulting officers are liable to be penalized. The company may be liable for a fine up to ₹25,000, while the responsible officers (directors, CFOs, or company secretaries) can be penalised between ₹25,000 and ₹3,00,000, imprisonment for up to six months, or both, depending on the severity and frequency of the default.
Further, non-filing is a sign of weak corporate governance and can jeopardize the company’s image and its relations with MSME vendors. The regulatory agencies will also open investigations or take other action. Early filing ensures compliance with the law and demonstrates ethical behavior in transacting with Micro and Small Enterprises and thus induces confidence and unhampered vendor interactions.
Conclusion
Filing Form MSME-1 is a significant compliance requirement that ensures transparency and timely payments to Micro and Small Enterprises. It ensures ethical business practices, enhances the relationship with vendors, and facilitates MSEs to maintain their financial health. The early filing of the form not only prevents companies from facing penalties under the Companies Act of 2013 but also reflects their commitment towards ethical corporate governance. By doing so, companies help achieve the larger goal of empowering the MSME sector, which is crucial for economic growth, employment generation, and sustainable development. Therefore, compliance with the requirements for filing as an MSME-1 is both legally and morally obligatory.
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