Form MSME-1 — the half-yearly MCA return that catches every late-paying buyer

Who must file

Every company — public, private, OPC, dormant, Sec 8 — that has any outstanding payment to a registered Micro or Small Enterprise for more than 45 days from the date of supply / service must file MSME-1. Coverage exclusions: LLPs (LLP Act has no analogue), partnership firms, proprietorships, individuals.

"Registered MSE" means an enterprise with a valid Udyam (or earlier Udyog Aadhaar / EM-II) certificate, falling within the Micro or Small category per Sec 7 of the MSMED Act 2006. Medium enterprises are outside the MSME-1 scope. Verify supplier classification via the Udyam portal.

The 45-day clock

Per Sec 15 of the MSMED Act 2006, payment to an MSE must be made:

• Within 45 days if a written agreement specifies a payment period (capped at 45).
• Within 15 days if no agreement exists.

The clock starts from "the day of acceptance" of the goods / services. "Day of acceptance" is defined as: actual date of delivery if no objection within 15 days, OR the date of removal of objection if any objection was raised. So practical clock-start is typically the invoice / delivery date.

The filing windows

If you have NO outstanding dues to MSEs > 45 days for a half-year, you still file MSME-1 as a "NIL" return. NIL filing is mandatory if you have any dealings with MSEs — only companies with zero MSE supplier dealings can skip filing.

What goes into the form

1. Company CIN, name, address, financial year.
2. For each MSE supplier outstanding > 45 days as of the period-end date:
   • Supplier name + PAN + Udyam registration number.
   • Amount outstanding.
   • Date from which amount is due (invoice date or acceptance date).
   • Reason for delay (free-text).
3. DSC of authorised signatory.

The Sec 43B(h) cross-tab

Finance Act 2023 inserted Sec 43B(h) into the Income-tax Act. From AY 2024-25 onwards, any sum payable to a Micro or Small enterprise beyond the Sec 15 MSMED timeline (45 / 15 days) is disallowed for IT purposes if not actually paid in the same financial year. Only deductible in the year of actual payment.

This creates a brutal cross-tab:

• MSME-1 captures unpaid MSE dues twice a year.
• The same data is available to the IT department via the MCA-CBDT data-sharing MoU.
• IT scrutiny under Sec 143(3) cross-checks MSME-1 disclosures against expense disallowance under Sec 43B(h).

Companies that "forget" to disclose in MSME-1 but legitimately had MSE dues will face two problems: MCA penalty for non-disclosure AND IT disallowance for not paying in time.

Penalty for non-filing

Section 405 of the Companies Act 2013 — failure to file MSME-1:

• Company: up to ₹25,000.
• Every director / KMP / officer in default: ₹25,000 to ₹3 lakh.

In practice, MCA issues a show-cause notice first; voluntary belated filing with payment of fees and a representation typically closes the case at ~₹25K-₹50K range.

Common defaults we see

1. Treating Udyam-registered Medium as MSE. Only Micro and Small are in scope. Medium is excluded. Some companies mistakenly include Medium enterprises in MSME-1 and unnecessarily expose themselves to Sec 43B(h) (which also covers only Micro and Small).
2. Filing only when there are dues. If you deal with any MSE supplier, you must file even a NIL MSME-1.
3. Not refreshing supplier Udyam status. An MSE supplier may upgrade to Medium, in which case their dues post-upgrade are not in MSMED Act scope. Verify status as on the period-end date.
4. Counting the 45 days from PO date. The clock starts from acceptance / delivery, not from PO. Disputed deliveries restart the clock from the date of objection-resolution.
5. Forgetting to obtain Udyam certificate copy. If you're disclosing in MSME-1, you should hold a copy of the supplier's Udyam registration for audit-proof.
6. March cut-off planning miss. Sec 43B(h) is a hard cut-off. Paying on 1-April for a 28-Feb invoice still triggers Sec 43B(h) disallowance for the year. Pay by 31-March or accept the disallowance.

How to operationalise — 5-step process

1. Vendor master clean-up: add a "Udyam Reg. No." + "MSE classification" field to your vendor master. Refresh quarterly via the Udyam portal API or vendor self-declaration.
2. Aged payables report: bucket MSE supplier dues by 0-15 / 16-45 / 46-90 / 90+ days. Flag > 45 days for both MSME-1 and Sec 43B(h).
3. March acceleration: by 15-March, accelerate clearance of all > 45-day MSE dues. This protects against Sec 43B(h) disallowance for the FY.
4. 15-April internal cut-off: finalise H2 MSME-1 data internally for 30-April filing.
5. 15-October internal cut-off: finalise H1 MSME-1 data for 31-October filing.

What about LLPs and proprietorships?

MSME-1 is purely a Companies Act requirement under Sec 405. LLPs are outside its scope — there is no equivalent MSME-1 for LLPs. But Sec 43B(h) of the Income-tax Act applies to all buyers, regardless of form — LLPs, partnerships, proprietorships, individuals doing business. So the IT disallowance applies even though the MCA disclosure doesn't.

Bottom line

MSME-1 is the only half-yearly MCA filing whose data has IT consequences. Don't treat it as paperwork — treat it as the public ledger of how you've delayed your MSE suppliers. Build the vendor master, refresh Udyam status quarterly, accelerate dues by 15-March, file the form twice a year. The cost of compliance is one analyst-day per half. The cost of default is Sec 43B(h) tax disallowance plus MCA penalty, and once cross-referenced, both bills land at the same scrutiny cycle.

Related

• Sec 43B(h) MSME payment tracker
• Sec 43B(h) — the 15-day rule that disallows expenses
• ROC annual filing — AOC-4 + MGT-7
• DIR-3 KYC — every director, once in three years