Compliances

All You Need to know about MSME Compliances

calendar04 Nov, 2019
timeReading Time: 4 Minutes
MSME Compliances

MSME (Micro Small and Medium Enterprise) is the pillar for the economic growth in many developed and developing countries across the world. These micro small and medium enterprises help in the accelerating the growth of our economy in the same as small things contribute towards the formation of the heap. Micro Small and Medium Enterprises is considered as the engine of betterment for all the developed and developing countries.

 The MSME sector in India contributes 45 % of the total Industrial employment, 50% of the Total Exports and 95% of the industrial units in our country. The government of our country has taken many initiatives and offered benefits to help the owners of these MSMEs to run and operate these enterprises efficiently. These tracks help in maintaining the record in a systematic manner which in future will accelerate the GDP growth[1] of our country. Here in this article, we will see in detail the MSME Compliances.

The basic difference between Small and Micro Enterprises

Small Enterprises are those enterprises in which the manufacturing units have made a minimum investment of INR 50  lakhs or below. Whereas for another category that is Service Enterprises, service enterprises have to invest less than INR 20,00,000 in these kinds of enterprises

Micro Enterprises are those enterprises in which the manufacturing units have made a minimum investment of INR 2.5lakhs or below. Whereas for another category that is Service Enterprises, service enterprises have to invest less than INR 10, 00,000 in these kinds of enterprises.

What are Specified companies?

Specified Companies are those companies who get supply from micro small and medium enterprises. In addition to this, Companies whose payments to Micro and small enterprise suppliers transcend 45 days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of Section 9 of the MSMED (Micro, Small and Medium Enterprises Development) Act, 2006.

Compliances for MSME

MSME Form 1 is a mandatory compliances for the specified companies which are defined in Section 9 of the MSMED (Micro, Small and Medium Enterprises Development) Act. These specified companies file the MSME Form 1 on a. half-yearly basis to the MCA (Ministry of Corporate Affairs).

What is the Return Periodicity of MSME Form 1?

Every specified company has to submit the yearly return on a half-yearly basis to the Registrar concerning the outstanding payments to the Micro, small and medium enterprises which contain the following information:

  • The amount of payment due;
  • The reasons for the delay.

Issues MSMEs must tackle to ensure compliances

  • Organizational structure: It is important to have a good and organised structure for business to make it successful. Many businesses lack either well planned structure, skill, knowledge, administrative apprehension and other additional compliance burden and do not get their businesses registered. Therefore, registration is required for the business so that the opportunities for the business opens up from the state and the central enterprises, they get the benefits from subsidies, higher tax rebates, easy access of investment or working capital.
  • Delayed payments: the problem of delayed realisation of bills is faced by every organization. This becomes the reason of excess financial constraints which is one of the major reasons for their consecutive failure. Nonetheless, such companies must be aware that according to the MSME Act 2006, it is the liability of the buyers to clear their invoices within the time period of 45 days so as to avoid heavy penalties.
  • Tax liability: with the introduction of GST, it has enhanced the ease of doing business for start-ups in India by bringing all state and central level levies and taxes under one cover but with that it has also increased the high pressure compliance on MSMEs.

What are the responsibilities of the Specified Companies after the MSME Registration?

The task does not end after you had the MSME Registration; there are certain compliances which needs to be followed by the Specified Companies.

  • The specified Companies need to check whether their suppliers are registered under the MSME Act or not.
  • If they are registered under the MSME Act, the Specified Companies need to check if there is any due payment from their end for a period which has exceeded 45 days from the date of acceptance of the services or goods by such company. Also, the company has to either close or file a return of the particulars of the due payments stating the reason for the delay in the MSME Form1.

The specifications of the Liability include:

  • The total amount of the Liability (Due Payment) on January 22nd, 2019.
  • Supplier Enterprise
  • PAN Card of the Supplier enterprise
  • The date from which the Liability started.

What is the Due Date of MSME Form 1?

All the specified companies are required to file the yearly return on a half-yearly basis. These companies need to file in the MSME Form 1 stating the outstanding dues to the Micro Small and medium enterprises suppliers within 30 days from the date of the publication of the notification specifying the order to perform the same.

Extension of the Due Date

The Ministry Of Corporate Affairs on February 21st 2019 state that the date of filing the MSME Form 1 will be calculated from the time the form is deployed on the MCA 21 Portal.

Period of Return: Date of Filing
April to September 31st October
October to March 30th April

What is the Penalty for not complying with these standards?

Following are the penalties for not complying with these standards:

  • There will be a fine of INR 25000 with the Defaulter Company.
  • The concerned officer of the company will be liable for imprisonment up to six months, or there will be a fine from INR 25000 to INR 3, 00,000.

Conclusion

The Ministry of Corporate affairs has altered the MSME compliances as per its requirements. Also, they have made it mandatory for micro small and medium enterprises to file returns stating their due payments to the Micro and small enterprises along with the reasons for the delay in MSME Form 1. The specified Companies under the MSME need to file the return on a half-yearly basis.

Read our article:MSME Registration: Essentials and Upcoming Benefits for Business

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