MSMED Act — MSME classification, Udyam & 45-day payment

MSMEs are classified by investment AND turnover: MICRO ≤ ₹1 cr & ≤ ₹5 cr; SMALL ≤ ₹10 cr & ≤ ₹50 cr; MEDIUM ≤ ₹50 cr & ≤ ₹250 cr. Registration is via UDYAM. Buyers must pay a registered micro/small supplier within 45 DAYS (§15); delay attracts compound interest (§16) and, from AY 2024-25, disallowance under §43B(h) of the Income-tax Act.

Key points

• CLASSIFICATION (composite criteria — BOTH limits apply): MICRO — plant & machinery/equipment investment up to ₹1 crore AND turnover up to ₹5 crore;
• SMALL — up to ₹10 crore AND up to ₹50 crore;
• MEDIUM — up to ₹50 crore AND up to ₹250 crore.
• Registration is online and free via the UDYAM REGISTRATION portal (Udyam Registration Number).
• DELAYED PAYMENT (§§15-16 MSMED Act): where a registered MICRO or SMALL enterprise supplies goods/services, the buyer must pay by the agreed date or, if none, within 45 DAYS of acceptance;
• on default the buyer pays COMPOUND INTEREST at THREE TIMES the RBI bank rate.
• INCOME-TAX LINK: §43B(h) (w.e.f. AY 2024-25) disallows a deduction for sums payable to a micro/small enterprise beyond the §15 time-limit UNLESS actually paid within that limit (the usual 'paid-before-return-due-date' relaxation does NOT apply).
• COMPANIES ACT LINK: companies with dues to micro/small enterprises outstanding beyond 45 days file the half-yearly return FORM MSME-1 (by 30 April and 31 October).
• MSME Samadhaan is the portal for delayed-payment complaints.

Reference: §§7,15,16 MSMED Act 2006 read with §43B(h) ITA & MSME-1