MSME Form 1 is one of the most overlooked compliance requirements under the Companies Act. Companies that owe money to micro and small enterprise suppliers beyond 45 days must disclose these outstanding amounts to the Registrar of Companies — twice a year. The penalties for non-filing are severe, and most companies don't realize they're in default until it's too late.
Who Must File?
Every company registered under the Companies Act, 2013 — private, public, even small companies — that has outstanding payments to micro or small enterprise (MSE) suppliers exceeding 45 days from the date of acceptance of goods or services.
Important: This applies only to micro and small enterprises, not medium enterprises. The mandate comes from the Specified Companies Order, 2019 issued under Section 405 of the Companies Act.
Filing Schedule
- April 1 to September 30: File by October 31
- October 1 to March 31: File by April 30
The 45-Day Payment Rule
Under Section 15 of the MSMED Act, 2006:
- With written agreement: Pay by the agreed date or within 45 days — whichever is earlier
- Without written agreement: Pay within 15 days of acceptance
- Interest on delay: Compound interest at 3 times the RBI bank rate, compounded monthly. At the current bank rate of 6.75%, that works out to approximately 20.25% per annum
The Income Tax Trap — Section 43B(h)
This is where it gets expensive. Under Section 43B(h), introduced via Finance Act 2023, if you don't pay your MSE supplier within the 45-day (or 15-day) window, the entire expense is disallowed as a deduction for income tax purposes. You can claim it only in the year you actually pay. And the interest paid on delayed MSME payments? Not deductible either, per Section 23 of the MSMED Act.
Penalties
- Company and officers: Fine of Rs 20,000, with a continuing penalty of Rs 1,000 per day for ongoing default
Practical Steps
Collect Udyam registration certificates from all vendors. Verify MSE status at udyamregistration.gov.in. Set up a vendor master flag in your ERP for MSE-tagged suppliers with automated 45-day payment alerts. The filing itself is straightforward — the hard part is knowing which vendors qualify and tracking payment timelines.
Comments (4)
Most companies I audit have no idea which vendors are MSE-registered. The compliance gap is massive.
The ERP vendor flag suggestion is practical. We set this up for 3 clients last quarter. Saves hours every filing.
20.25% compound interest is brutal. And it is not even tax-deductible. Double penalty for late payment.
Section 43B(h) is what made companies actually start caring about MSME payments. The tax disallowance hurts.