MSME Form 1: Key Filing Rules and Requirements

Introduction — Purpose of MSME Form 1

MSME Form 1 is a statutory disclosure designed to promote timely payments to Micro and Small Enterprises by requiring specified buyers to report overdue amounts. The form promotes transparency in buyer–supplier relationships and helps regulatory oversight of payment cycles that affect MSME liquidity. By identifying outstanding dues, the mechanism encourages timely settlement and strengthens corporate governance.

Background & Applicability

MSME Form 1 applies to specified companies that procure goods or services from micro or small enterprises and have unpaid dues exceeding the prescribed time limit. The obligation arises when the corporate buyer has amounts outstanding beyond 45 days from the date of acceptance or deemed acceptance of goods or services. The form is not a universal filing requirement but applies only where the supplier qualifies as a micro or small enterprise.

Definition of Micro and Small Enterprises

Only suppliers classified as micro or small enterprises are reportable in MSME Form 1. Classification is determined by investment and turnover thresholds applicable under MSME norms in force. The buyer must verify the supplier's registration status (such as Udyam registration) to confirm the supplier's eligibility under the MSME definition before including them in the return.

Trigger for Filing — When does the obligation arise?

The filing obligation is triggered when a buyer has unpaid amounts due to an MSME for more than 45 days from acceptance or deemed acceptance. The calculation starts at the acceptance date; if no explicit acceptance exists, deemed acceptance rules apply. A single overdue invoice beyond 45 days can make the company liable to file the return for the reporting period that captures the overdue balance.

Types of Returns — Initial and Half-Yearly Filings

Reporting includes an initial return to disclose existing overdue balances when the obligation first applies and subsequent half-yearly returns filed for two periods each financial year. The half-yearly returns cover April–September and October–March, and must disclose all amounts that were overdue for more than 45 days during the period.

Information Required

The return requires invoice-level detail including the supplier's name, MSME registration identifier, outstanding amount, date from which the amount became payable, and reasons for delay. The company must also confirm verification of the supplier's MSME status. Accurate and complete information ensures transparency and reduces the risk of penalties.

Responsibility & Internal Controls

Responsibility for compliance usually rests with finance and compliance teams. Companies should implement internal controls that track MSME suppliers, flag aging beyond 45 days, and reconcile vendor ledgers. Controls may include automated ageing reports, mandatory collection of supplier registration certificates, and periodic vendor audits to maintain up-to-date records.

Consequences of Non-Compliance

Non-filing, late filing or inaccurate reporting can attract penalties and regulatory scrutiny. Penalties may apply to the company and, in some cases, to responsible officers. Beyond direct penalties, repeated non-compliance harms reputation and increases likelihood of enforcement action. Treat MSME Form 1 as a governance requirement and ensure timely, accurate submissions.

Impact on Business Practices

Mandatory reporting encourages buyers to adhere to payment timelines, improves vendor relationships, and reduces working capital stress for MSMEs. Many companies have refined procurement and payment processes to avoid reportable delays, including streamlining invoice approvals and prioritising MSME payments.

Practical Challenges

Challenges include collecting valid MSME registrations, tracking changes in supplier status, distinguishing disputed amounts from reportable delays, and ensuring invoice-level reconciliation across systems. Companies must also contend with legacy data and disparate ERPs which make consolidated reporting difficult without robust reconciliation processes.

Best Practices

• Maintain a central MSME supplier registry and validate registration documents periodically.
• Implement automated ageing and alerts to flag invoices approaching the 45-day threshold.
• Reconcile vendor ledgers monthly and document reasons for any delays transparently.
• Set internal deadlines before statutory filing dates to allow reviews and corrections.
• Train procurement and accounts-payable teams on MSME-specific requirements.

Conclusion

MSME Form 1 is a targeted compliance and governance tool that strengthens payment discipline towards micro and small enterprises. For companies, it imposes a requirement for robust vendor tracking and timely vendor payments. For MSMEs, it enhances visibility and helps reduce liquidity pressures caused by delayed payments. Effective compliance depends on reliable internal controls, clear supplier validation, and timely reconciliation and filing.