Micro, Small and Medium Enterprises Development (MSMED), Act (An assurance of timely payments to MSME Suppliers under MSMED Act)
Introduction: The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, plays a pivotal role in regulating payments for goods and services supplied by MSME units. It sets clear guidelines for payment schedules and outlines the consequences for buyers who delay payments. This act not only aims to facilitate prompt payments to MSMEs but also imposes strict penalties on defaulters, thereby ensuring a smoother cash flow for these enterprises. This article delves into the specifics of payment terms under the MSMED Act, 2006, the repercussions of not adhering to these terms, and the additional obligations buyers must fulfill.
With the enactment of the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, for the goods and services supplied by the MSEME units, payments have to be made by the buyers as under:
1. The buyer is to make payment on or before the date agreed on between him and the supplier in writing (The agreement between seller and buyer shall not exceed more than 45 days) or,
2. in case of no agreement, before the appointed day, the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
Schedule of Due dates for payment
Particulars Due Date of Payment
If Credit Period agreed or mentioned in bill is 7 Days. With in 7 Days from Date of Acceptance of Bill
If Credit Period agreed or mentioned in bill is 60 Days. With in 45 Days as agreement between seller and buyer cannot exceed more than 45 days
If No Credit Period agreed or nothing mentioned in bill. 15 Days from acceptance of Bill
Consequences, If the buyer fails to make payment of the amount to the supplier within due time: –
1. The Buyer shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank.
2. Interest not to be allowed as deduction from income, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.
3. Also, Buyer can’t claim deductions of amount outstanding over 45 days and not cleared within Financial Year (Section 43B(h) of Income Tax Act), though can claim deduction only in the year of ‘actual payment’.
Other Obligations of Buyer: –
1. MSME-1, a half-yearly return needs to be filed by the companies, who have failed to make payment to the suppliers within 45 days from the date of acceptance of such goods/services.
Every company that gets supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprises exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services, fails to file MSME-1 to the Ministry of Corporate Affairs within the due date as specified above, shall be liable to a penalty amounting to Rs.20,000/- as per the provision of Section 405(4) of the Companies Act, 2013.
Further, in case of continuing failure, the company and every officer in default will be liable for a further penalty of Rs.1000/- for each day the failure continues, subject to a maximum of Rs.3 lakh.
2. Disclosure in Financial Statements, Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the additional information in his annual statement of accounts, regarding amount outstanding to MSME, Interest Paid to MSME, Interest payable etc.
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Disclaimer: This material and the information contained herein are intended to provide general information on a particular subject. Before making any decision or taking any action you should consult a qualified professional adviser. Author shall not be responsible for any loss whatsoever sustained by any person who relies on this material.
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