In an effort to address the persistent issue of delayed payments to Micro, Small, and Medium Enterprises (MSMEs), the Ministry of Corporate Affairs (MCA) has mandated that all companies procuring goods or services from MSMEs must file a half-yearly return in MSME Form 1. This comprehensive guide explains everything businesses need to know about this critical compliance requirement, its significance, and the process to fulfill it effectively.
What is MSME Form 1?
MSME Form 1 is a mandatory half-yearly return that companies must file with the Registrar of Companies (ROC) under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). This form captures details of all outstanding payments to MSME suppliers beyond the prescribed time limits.
The primary objective of this return is to enforce the provisions of Section 9 of the MSMED Act, which mandates that buyers must make payment to MSME suppliers within 45 days from the date of acceptance or deemed acceptance of goods or services.
Who Needs to File MSME Form 1?
All companies, regardless of size, that procure goods or services from registered MSMEs must file MSME Form 1 if:
- They have outstanding payments to MSME suppliers beyond 45 days, or
- They have made payments to MSME suppliers with delays during the reporting period
It’s important to note that this is applicable to all companies registered under the Companies Act, 2013, including:
- Public limited companies
- Private limited companies
- One Person Companies (OPCs)
- Limited Liability Partnerships (LLPs)
- Foreign companies operating in India
Even if a company has no outstanding dues to MSMEs beyond the stipulated period, it is advisable to file a ‘NIL’ return to demonstrate compliance with the requirements.
Reporting Periods and Due Dates
MSME Form 1 must be filed twice a year:
- First Half (April to September): Due by October 31st
- Second Half (October to March): Due by April 30th
For example, for the financial year 2024-25:
- For the period April 1, 2024, to September 30, 2024, the form must be filed by October 31, 2024
- For the period October 1, 2024, to March 31, 2025, the form must be filed by April 30, 2025
Information Required in MSME Form 1
The form requires detailed information about outstanding payments to MSME suppliers, including:
- Company Details: CIN, name, and registered office address
- Reporting Period: Half-year period for which the return is being filed
- MSME Supplier Details: Name, Udyam Registration Number, and contact information
- Payment Details:
- Amount due to each MSME supplier
- Due date of payment
- Actual date of payment (if made)
- Reasons for delay
- Interest accrued and paid/unpaid on delayed payments
- Authorization: Director’s details and Digital Signature Certificate (DSC)
Step-by-Step Process to File MSME Form 1
1. Gather Required Information
Before beginning the filing process, compile a list of all MSME suppliers with:
- Their Udyam Registration Numbers
- Outstanding amounts
- Due dates of payments
- Actual payment dates (if applicable)
- Reasons for delays
2. Access the MCA Portal
- Visit the official MCA portal (www.mca.gov.in)
- Log in using your registered credentials
- Navigate to the “Companies/LLPs” section
3. Fill the Form
- Select “MSME Form 1” from the forms list
- Enter your company’s CIN (the system will auto-populate basic company details)
- Select the relevant half-year period
- Fill in the required information about outstanding dues to MSME suppliers
- If there are no outstanding dues, file a ‘NIL’ return by selecting the appropriate option
4. Review and Submit
- Review all entered information for accuracy
- Attach any supporting documents if required
- The form must be digitally signed by:
- Director
- Company Secretary, or
- CEO/CFO of the company
5. Pay the Filing Fee
- The filing fee is based on the company’s authorized capital:
- For companies with authorized capital up to ₹25 lakhs: ₹300
- For companies with authorized capital above ₹25 lakhs and up to ₹1 crore: ₹500
- For companies with authorized capital above ₹1 crore: ₹1,000
6. Download Acknowledgment
Once the form is successfully submitted and the fee is paid, download and save the acknowledgment for future reference.
Consequences of Non-Compliance
Failure to file MSME Form 1 or filing it with incorrect information can lead to:
- Monetary Penalties: Under Section 405 of the Companies Act, 2013, companies can face penalties of up to ₹25,000, and officers in default can face penalties of up to ₹5,000
- Compound Interest: As per the MSMED Act, companies have to pay compound interest at three times the bank rate notified by the RBI for any delayed payment to MSME suppliers
- Reputational Damage: Non-compliance can affect the company’s reputation among suppliers and stakeholders
- Legal Proceedings: MSME suppliers can initiate proceedings against defaulting companies through the MSME Facilitation Councils
Recent Updates and Changes
Integration with Udyam Registration
With the introduction of the Udyam Registration system, companies are now required to verify the MSME status of their suppliers using the Udyam Registration Number (URN). This has streamlined the process of identifying genuine MSME suppliers.
Online Filing System
The MCA has enhanced the online filing system for MSME Form 1, making it more user-friendly and efficient. The system now has better validation checks to ensure accurate reporting.
Increased Scrutiny
There has been increased scrutiny of MSME Form 1 filings, with the MCA cross-checking the information with other statutory filings and MSME complaints received through the MSME Samadhaan portal.
Best Practices for Compliance
To ensure smooth compliance with MSME Form 1 requirements, companies should:
- Maintain Updated Vendor Database: Keep a comprehensive database of all suppliers with their MSME registration status
- Implement Tracking System: Establish a system to track payment due dates for MSME suppliers
- Regular Review: Conduct regular reviews of outstanding payments to MSMEs
- Timely Payments: Prioritize payments to MSME suppliers within the 45-day timeframe
- Document Management: Maintain proper documentation of all transactions with MSME suppliers
- Internal Reporting: Establish internal reporting mechanisms to identify potential delays before they occur
- Calendar Reminders: Set up reminders for filing deadlines to avoid last-minute rushes
Frequently Asked Questions (FAQs) About MSME Form 1
1. Is it mandatory for all companies to file MSME Form 1?
Yes, all companies registered under the Companies Act, 2013 that deal with MSME suppliers must file MSME Form 1, regardless of whether they have outstanding dues beyond 45 days. If there are no outstanding dues, companies should file a ‘NIL’ return.
2. What if we don’t know whether our supplier is an MSME?
It is your responsibility as a buyer to ask your suppliers for their MSME registration status. You can verify their status by asking for their Udyam Registration Number and validating it on the official Udyam Registration portal.
3. Can we file MSME Form 1 after the due date?
Yes, you can file MSME Form 1 after the due date, but you will be liable to pay additional fees and may face penalties for late filing. The MCA portal allows for delayed filing with additional fees.
4. What happens if we miss filing MSME Form 1 for multiple periods?
For each missed filing period, separate penalties can be imposed. Additionally, compounding of violations may lead to higher penalties. It’s advisable to file all pending returns as soon as possible to minimize the potential penalties.
5. Can we amend an already filed MSME Form 1?
No, there is no provision to amend or revise an already filed MSME Form 1. If there are errors in the filed form, it is advisable to maintain a record of the correct information internally and ensure accurate filing in the next reporting period.
6. Do we need to report all MSME suppliers or only those with delayed payments?
MSME Form 1 requires reporting of all outstanding payments to MSMEs beyond the 45-day period and all payments made with delays during the reporting period. You do not need to report MSME suppliers to whom payments were made within the stipulated timeframe.
7. How do we calculate the 45-day period for payment?
The 45-day period is calculated from the date of acceptance or deemed acceptance of goods or services. As per the MSMED Act, acceptance is deemed to have occurred when no objection is communicated within 15 days of delivery of goods or provision of services.
8. Is interest on delayed payments mandatory?
Yes, as per Section 16 of the MSMED Act, the buyer is liable to pay compound interest at three times the bank rate notified by the RBI for any payment made after the 45-day period. This interest must be reported in MSME Form 1.
9. Can LLPs file MSME Form 1?
Yes, the requirement to file MSME Form 1 applies to companies registered under the Companies Act, 2013, and also extends to Limited Liability Partnerships (LLPs) that deal with MSME suppliers.
10. What documentation should we maintain for MSME Form 1 compliance?
Companies should maintain:
- Copies of invoices from MSME suppliers
- Proof of payment dates
- Communications regarding acceptance of goods/services
- Copies of filed MSME Form 1 returns and acknowledgments
- Records of interest calculations for delayed payments
- Documentation of supplier MSME status verification
Conclusion
MSME Form 1 is a crucial compliance requirement that serves the dual purpose of protecting MSME suppliers from delayed payments and helping regulatory authorities monitor payment practices. Timely and accurate filing of this return not only keeps companies compliant with legal requirements but also contributes to the financial health of the MSME sector, which is vital for India’s economic growth.
By understanding the requirements and following the proper procedures for filing MSME Form 1, companies can avoid penalties, maintain good relationships with their MSME suppliers, and contribute to a healthier business ecosystem.
For specific queries related to your company’s MSME Form 1 filing requirements, it is advisable to consult with a qualified company secretary or legal advisor who can provide guidance tailored to your specific circumstances.
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