Key Points On E-Form MSME-1

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Introduction

Micro, small, and medium enterprises (MSMEs) form the backbone of the economy in India. It is a key sector contributing to 30% of the country’s GDP, 45% of manufacturing output, has a share of 50% in exports, and provides employment to almost 11 crore people in our country. To protect this fast-expanding sector, a separate ministry of MSME was established, and the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, was passed. The introduction of E-Form MSME-1 is an important step to ensure timely payment to MSMEs, as the delay in payments was a huge impediment to the growth and competitiveness of the sector in the economy. Understanding and filing accurate e-form MSME-1 within the due date is crucial for companies to maintain transparency and adherence to the regulatory guidelines. Non-compliance can result in the risk of fines and penalties.

Understanding E-Form MSME-1

The amendments under Schedule III of the Companies Act, 2013, made by the Ministry of Corporate Affairs (MCA), read with notification S.O. 368(E) dated January 22, 2019, require companies to make certain disclosures pertaining to delayed payments to vendors registered under the Micro, Small, and Medium Enterprises Development Act, 2006 (MSME Act, 2006). The main purpose of this form is to inform the Registrar of Companies (ROC) about the outstanding payments by a company to tis MSME registered vendors for a period exceeding 45 days. E-form MSME-1 is a half-yearly return that is specified companies must file. They are:

1) Companies that receive supplies of goods or services from micro, small or medium enterprises and 

2) Payment to such MSMEs is delayed beyond 45 days from the date of acceptance or deemed acceptance of the goods and services.

Due dates for filing E-Form MSME-1

The due dates for the specified companies to file the half-yearly return are:

  1. i)    For the period from April to September, the due date is October 31st. 
  2. ii)    For the period from October to March, the due date is April 30th.

Penalties for non-compliance

Timely payment to MSMEs is crucial to avoid the risk of fines and penalties for non-compliance which are:

a)   Penalty for non-filing

As per section 405(4) of the companies Act, 2013, penalty for non-filing within the stipulated due date is Rs.20,000/-

b)   Officer liability

The penalty for non-filing is not restricted to only the company, it effects the officers of the company as well. Each officer who is accountable for non-filing within the due date in spite of knowledge of the consequences is liable to pay Rs.20000/-.

c)   Continued non-filing

Companies that persistently fail to file are liable to pay an additional penalty of Rs.1000/-for each day of non-compliance, subject to a maximum penalty of Rs.3,00,000/-.

E-Form MSME-1 Features

The information in E-Form MSME-1 must be accurate and adhere to the regulatory guidelines. It consists of two parts. The first part consists of the company details: 

  • Corporate Identity Number (CIN): The unique number the MCA assignes to the company.
  • Name of company: Company’s registered name
  •  Address: Address of registered office
  • Financial Year: The financial year for which the outstanding payments are reported

 The second part consists of details of the outstanding payments to MSMEs:

 

  • Name of the MSME supplier: Name of the MSME for whom the payment is outstanding
  • MSME registration number (UAM): The unique UAM assigned to the MSME supplier
  •  Invoice date: The date of the invoice that the MSME supplier issues to the purchaser
  •  Due date: The date on which the payment was due to the supplier
  •  Amount outstanding: The outstanding payment amount that is due to the supplier
  •  Reason for delay in payment: Explanation for the delay in payment

E-Form MSME-1 is available online on the portal of Corporate Affairs Ministry. It must be signed digitally  by the director, manager, or any authorized signatory of the company.

Advantages of Using E-Form MSME-1

  • The main advantage of e-form MSME-1 is timely payment to MSMEs from the purchasers. It helps the government track payments and safeguard the health of MSMEs.
  • As the form requires specific companies to report to the Registrar of Companies (ROC) their outstanding payments to MSME vendors, it acts as a deterrent against delayed payments. There is transparency, and the ROC can monitor the payments.
  • The possibility of scrutiny and penal consequences makes the companies prioritize payments to MSMEs within the time limit.
  • MSMEs are modest businesses and play a major role in generating job opportunities and overall economic growth. So, it is important to protect them, which is the main purpose of the implementation of the MSME Act, 2006.
  • Non-payment and delayed payments to MSMEs block the working capital flow of these businesses, affecting their operations. The e-form helps to curb the payment difficulties faced by MSMEs.
  •  E-Form MSME-1 aligns with the purpose of the MSME Act, 2006, to ensure timely payment to MSMEs and penalize defaulters.
  • Pecuniary loss in the form of fines and penalties makes it obligatory for specific companies to file E-Form MSME-1 within the due date.
  • The data collected through E-Form MSME-1 provides valuable insights into payment trends and payment delays so that the government can formulate policies to address the delays and promote a better business atmosphere for MSMEs.

Implementation Strategies

MSMEs face a lot of challenges that require sustainable strategies for innovation and growth. The Government of India passed the MSMED Act, 2006,  for the promotion, development, and enhancement of the competitiveness of micro, small, and medium enterprises and the matters connected therewith or incidental thereto. This is done by ensuring that ‘small enterprises’ and ‘medium enterprises’ have legal meanings, and by creating the National Small and Medium Enterprises Board, a high-level forum. All interested parties can review the policies and offer suggestions in this forum. MSMEs belong to diverse sectors, from manufacturing to technology startups. To implement suitable strategies, the sectors must be recognized.

The challenges faced by MSMEs in India today are:

Access to finance and credit

MSMEs are not able to secure sufficient financial resources to buy machinery, equipment, raw materials and sometimes day to day expenses as they do not get sufficient loans or credit from banks and other financial institutions.

Skill development

As MSMEs have a low paying capacity, they are not able to employ skilled labor or create skill development programs for their employees.

Technology adoption

They use obsolete technology, and financial constraints result in a lack of awareness of advanced production technologies. Using traditional methods affects their production.

Regulatory compliance

They find it difficult to navigate the complexity of national and international regulatory procedures due to the dearth of skilled and trained employees.

Market access

MSMEs face tough competition from larger firms and multinational companies that have the resources to offer quality goods at affordable prices. They face problems related to market accessibility at national and international levels. They cannot sell their products at competitive prices and they are not able to spend much on advertising and market research

Management practices

Their management practices are inadequate due to a lack of proper resources and training. Because of their weak infrastructure, their capacity  to produce  is limited and their production costs are high so they are not able to sell their products at competitive prices.

Government Strategies 

To encourage MSMEs, the Government of India formulated many benefit schemes like the Emergency Credit Line Guarantee Scheme (ECLGS), the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE), the Raising and Accelerating MSME Performance (RAMP) programme, and the MSME Self-Reliant India Fund.

The MSME sector has a major role in creating job opportunities, eliminating regional disparities, and improving inclusivity for marginalised communities in the economy.  With government policies such as ‘Make in India’ and ‘Digital India’, MSMEs have a great opportunity to grow in the future. But more support and care are needed for the sector to grow. The Indian economy is expected to emerge as one of the world’s main economies, in which MSMEs are going to play a crucial role. So it is crucial that they be developed to the maximum extent to promote inclusive growth.


  • Security Measures

Security is important in the MSME sector, due to the increasing cyber threats. There is an urgent need for a robust cyber security infrastructure for this sector, as it is a crucial link in the  country’s supply chains. Their lack of advanced security systems due to limited resources makes them susceptible to cybercrime, risking themselves and their larger partners. Some of the key strategies that need to be adopted to safeguard their infrastructure are:

  • Prioritize cyber security

MSMEs must prioritize cyber security to protect themselves from breaches. They should implement a solution that gives extended detection and response to their systems.

  •  Cloud based solutions

Cloud based solutions are cost effective and keep the data safe. They need to implement cybersecurity solutions with cloud-based facilities.

  •  Employee awareness and training

With the growth of the digital economy, MSMEs are venturing into newer markets, making them vulnerable to cyberattacks. They need to equip their employees with the necessary cyber security training and tools and create awareness about online frauds, phishing attacks, and data breaches.

  •  Access control

Cybersecurity standards require evaluating the risks the organization is exposed to and the need to follow the regulatory practices for security. The correct level of controls must be applied to different groups of employees, including remote workers, to ensure that data is protected.

  • Follow best practices

Security audits, educating employees, and following other best practices that standards promote can safeguard organizations and their people from the harmful consequences of cyber attacks. This helps ROC to strengthen customer trust, create new trade opportunities, and improve business.

E-Form MSME-1 in Regulatory Compliance

Section 15 and 2(b) of the MSMED Act mandate that the purchaser make the payment to the MSME registered supplier within 45 days from the date of acceptance or deemed acceptance of the goods or services. Such companies that have not made the payment as stated under the act are called ‘specified companies’, under Section 405 of the Companies Act, 2013. The specified companies are required to file E-Form MSME-1 on a half yearly basis. The due dates are April, for the period from October to March, and October 31 for the period from April to September.

Non-compliance with the filing requirements will lead to significant financial implications, both for the company to the extent of Rs.20,000/- and for the officers of the company at Rs.20000/-each. For continued non-compliance, it is Rs.1000/-for each day of non-compliance. Apart from the pecuniary loss, companies that fail to file E-Form MSME-1 may face a significant loss of reputation as non-compliance is recorded in the MCA website, accessible to the public. It reflects badly on the company’s business and compliance. A loss of reputation can affect stakeholder trust, business value, and share value. MCA can also initiate legal proceedings against the company and its officers, leading to further loss of time and money.

Future Trends in E-Forms

E-Forms are effective in introducing transparency and accountability in corporate governance. The government of India introduced E-Form MSME-1 to protect MSMEs from payment difficulties.

Digitization is fast becoming an important part of business and will be even more important in the future. A well-connected digital ecosystem that provides end-to-end solutions, from finance to knowledge sources, is crucial for MSMEs. E-Forms are a vital part of the digital system through which the authorities can monitor and streamline the payment system and ensure that the MSMEs get the payment due to them within the specified time.

 E-Forms streamline operations, reduce costs, and save paper, thus helping to protect the environment. The increase in internet usage and digitization of most businesses has led to a demand for paperless solutions. Smart phone access and advancements in digital infrastructure point to the implementation of e-forms in all regulatory compliances. The ease of monitoring transactions helps the authorities improve revenue and impose stricter laws for compliance. The availability of all the crucial data in one place also helps them analyze trends and formulate policies to benefit both businesses and the government. They can also make informed decisions based on the data analyzed. E-forms help to streamline businesses and improve governance, innovation, and sustainability.

Conclusion

The Ministry of Corporate Affairs (MCA) introduced the E-Form MSME-1 to protect the interests of MSMEs, promote timely payments to them, and formulate policies to address payment delays based on the data collected through the forms filed. It also helps the MCA enforce the regulations through fines, penalties, and other consequences. The disclosures in the forms by the companies promote transparency and accountability. This encourages responsible payment practices by the companies and protects MSMEs.

Frequently asked questions

  1.   What is E-Form MSME-1

Answer: E-Form MSME-1 is a half yearly return that must be filed by specified companies with the registrar of companies regarding outstanding payments to micro, small, and medium enterprises.

  1.  What is the purpose of E-Form MSME-1?

Answer: The Registrar of Companies introduced the E-Form MSME-1 to protect the MSMEs from losses due to non-payment by the purchasers. The delay caused a lot of problems for the MSMEs in terms of their performance and survival in the industry.

  1.   What are the details required in e-form MSME-1

Answer: CIN, PAN of company, name, address, email address of company, total amount outstanding against supply of goods or services, name, address, PAN of each supplier, amount due to each supplier, date from which amount is due, and reason for delay in payment.

  1.   Are there any fees for e-form MSME-1?

Answer: No, there are no ROC fees for filing e-form MSME-1. It can be filed without any cost.

  1.   How do you calculate 45 days for filing e-form MSME-1?

Answer: As per the MSME Act, 45 days is calculated from the date of acceptance or deemed acceptance of goods and services.

author avatar
Vidya Sagar Freelance Writer
Vidya Sagar has post graduate and Law graduate qualifications. She has worked in the finance industry for many years. She is passionate about writing and keen on writing articles related to tax, accounting, audit, and other finance related topics. She likes to simplify complex financial matters to help her readers understand easily. She reads a lot in her spare time and keeps herself updated with the latest financial news. She likes helping people in all their financial and compliance requirements

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