For twenty years the MSMED Act gave small suppliers a strong right on paper — payment within 45 days, compound interest at three times the RBI bank rate if the buyer is late — and a weak way to enforce it. The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026, which received Presidential assent on 13 August 2026, is an attempt to fix the enforcement half.
If you supply to a public sector enterprise, or you have ever waited six months for a Facilitation Council to list your case, this is the most consequential change to the Act since Udyam registration.
What actually changed
| Area | Section | Change |
|---|---|---|
| Classification | Section 7 (substituted) | The Centre may classify enterprises on investment in plant and machinery or equipment together with turnover; the thresholds themselves are to be notified |
| Registration | — | A national digital platform for free and voluntary MSME registration, with states able to notify complementary platforms |
| Payments to MSMEs | New Section 15A | CPSEs must settle MSME procurement invoices through an RBI-authorised TReDS platform; the Centre and states may extend the mandate to other notified entities |
| Dispute resolution | Section 18, new 18(4A) | Mediation before the Facilitation Council within 90 days of first appearance; Council action within 30 days after mediation; arbitral awards within 90 days of pleadings closing; appeals decided within 60 days |
| Enforcement | Section 19 (amended) | Changes to how awards are challenged and enforced |
| Penalties | Section 27 (substituted), new 27A | A graded money penalty regime, with amounts stepping up for repeat breaches and rising 10% every three years |
TReDS: the change with teeth
TReDS — the Trade Receivables Discounting System — is the RBI-authorised marketplace where a supplier's accepted invoice on a large buyer is auctioned to financiers, so the supplier gets paid in days at a discount and the financier collects from the buyer on the due date. RXIL, M1xchange and Invoicemart are the platforms.
Until now, onboarding was mandatory for companies above ₹250 crore turnover and for CPSEs, but settling through it was not. Section 15A changes the verb: central public sector enterprises must route MSME invoice settlement through TReDS, not merely register on it. For a supplier to a PSU, that converts a 90-day wait into a financed payout within days of invoice acceptance, at a discount that is usually far cheaper than the overdraft it replaces — compare the two with the EMI calculator.
Two practical conditions, both on you: your Udyam registration must be current, and your invoice must be clean enough to be accepted on the platform without query. Raise it with the correct GSTIN, HSN/SAC and PO reference using the GST invoice generator, and keep the buyer's purchase order terms on file.
The 45-day rule is unchanged — and still the thing that matters
Nothing in the amendment touches Section 15's payment period or Section 16's interest. So:
- Payment is due within the period agreed in writing, capped at 45 days from acceptance or deemed acceptance; 15 days where there is no written agreement.
- Late payment carries compound interest, compounded monthly, at three times the RBI bank rate — 16.5% a year at a 5.5% bank rate.
- The buyer cannot deduct that interest as an expense, and under Section 43B(h) of the Income-tax Act cannot deduct the principal expense either until it is actually paid, where payment is late.
That income-tax lever is why large buyers started paying small suppliers on time in 2024, and it is covered in Section 43B(h): the 45-day payment rule. Compute what you are owed, to the rupee, with the late payment interest calculator before you send a reminder or file on Samadhaan.
Councils with clocks
The old complaint about MSME Samadhaan was not the law, it was the wait. The amendment puts time limits on each stage: mediation concluded within 90 days of the first appearance, Council action within 30 days of mediation ending, awards within 90 days of pleadings completing, and appeals decided within 60 days. Taken end to end, a reference that used to drift for two years is meant to resolve in well under one.
Deadlines in a statute are not self-executing — but they give you something to cite when a matter stalls, and they change how a buyer weighs the cost of fighting versus paying.
Penalties, finally
Section 27 previously produced little. The substituted section introduces graded money penalties: for giving false information at registration, roughly ₹1,000 rising to ₹50,000 for subsequent defaults; for a buyer's breach of Section 22 (failure to disclose unpaid MSME dues in the annual accounts), ₹10,000–₹50,000 for a second breach and ₹50,000–₹1 lakh for a third or later one, with all amounts rising 10% every three years. Modest numbers, but Section 22 disclosure is what makes overdue MSME dues visible to auditors and the board — and visibility is usually what gets an invoice paid.
What a small supplier should do this month
- Check your Udyam registration is live and the details current — turnover, investment, bank account, NIC codes. Benefits, including TReDS and the 45-day protection, follow the registration. See The new MSME definition.
- Print the MSME line on every invoice: "Micro/Small enterprise, Udyam Registration No. UDYAM-XX-00-0000000. Payment due within 45 days under the MSMED Act, 2006." It is the cheapest collection tool you have.
- Get on a TReDS platform if you supply PSUs or large corporates. Registration is free; the discount is only paid when you choose to finance an invoice.
- Date your acceptances. The 45 days run from acceptance or deemed acceptance, not from the invoice — keep the delivery challan, the goods-receipt note and the email that confirms acceptance. Count the window with the business days calculator, remembering the Act counts calendar days.
- Put the interest clause in your written agreement and your PO acknowledgement, so there is no argument about the credit period later.
And if you are the buyer
Pay micro and small suppliers inside the agreed period, and run a report of unpaid MSME dues before the year closes — the 43B(h) disallowance lands in the year the expense was booked, not the year you eventually pay. If you are a CPSE or a notified entity, settlement now has to run through TReDS, which means your procurement and AP systems need the invoice accepted on the platform, not just in your ERP.
FAQ
When did the MSMED Amendment Act, 2026 come into force?
It received Presidential assent on 13 August 2026. Some provisions, including the classification thresholds under the substituted Section 7, operate through separate government notifications.
Is TReDS now mandatory for everyone?
No. The mandate in Section 15A applies to Central Public Sector Enterprises settling MSME invoices, and the Centre and states may extend it to other notified entities. Private buyers above the existing turnover threshold must still be onboarded, as before.
Did the 45-day payment rule change?
No. Payment remains due within the agreed period capped at 45 days from acceptance (15 days without a written agreement), with compound interest at three times the RBI bank rate for delays.
How fast should a Facilitation Council case move now?
Mediation within 90 days of first appearance, Council action within 30 days after that, an award within 90 days of pleadings closing, and an appeal decided within 60 days.
What are the new penalties?
Graded amounts for false registration information and for a buyer's failure to make the Section 22 disclosure of unpaid MSME dues, escalating with repeat breaches and rising 10% every three years.
Do I need Udyam registration to claim the 45-day interest?
Yes. The protections apply to enterprises registered as micro or small on the date of supply, which is why keeping the registration current matters more than ever.