What is MSME-1?
Form MSME-1 is a statutory half-yearly return mandated under Section 405 of the Companies Act, 2013 read with the Specified Companies (Furnishing of Information about Payment to Micro and Small Enterprise Suppliers) Order, 2019, notified on 22 January 2019.
Its purpose is to create regulatory visibility into delayed corporate payments to Micro and Small Enterprise (MSE) vendors. Any incorporated company that procures goods or services from MSE suppliers and delays payment beyond 45 days must submit this electronic return disclosing invoice details, supplier Udyam registration numbers, reasons for delay, and penal interest accrued under the MSMED Act, 2006.
Who Must File MSME-1?
A company must file Form MSME-1 if it satisfies the Two-Condition Test:
- The company has received goods or services from a supplier registered as a Micro or Small Enterprise under the MSMED Act (verified via Udyam Registration); AND
- Payment to that supplier has been delayed for more than 45 days from the date of acceptance or deemed acceptance.
Applicable Entities: Private Limited Companies, Public Limited Companies, One Person Companies (OPC), Small Companies, Section 8 Non-Profit Companies, and Producer Companies.
Exempt Entities: Limited Liability Partnerships (LLPs), Partnership Firms, Sole Proprietorships, and transactions with Medium Enterprises (turnover > ₹50 Cr) or retail traders.
MSME-1 Due Date & Timeline
Form MSME-1 follows a strict bi-annual cycle governed by Section 405:
- Half-Year 1 (April 1 to September 30): Statutory Due Date is 31st October.
- Half-Year 2 (October 1 to March 31): Statutory Due Date is 30th April.
- No Nil Return (Subject to V3 Trap): If no vendor payments crossed 45 days during the half-year, no return is due. However, if any payment crossed 45 days during the term—even if settled before period end—filing is mandatory on MCA V3.
- No Extension of Time: Unlike annual financial returns, MCA circulars rarely extend MSME-1 due dates. Backdating is strictly blocked.
Consequences of Late Filing MSME-1
Failing to file Form MSME-1 or delaying payments triggers three cumulative legal consequences:
1. Section 405(4) Civil Adjudication Penalties
Section 405(4) imposes an immediate base penalty of ₹20,000 PLUS a continuing penalty of ₹1,000 per day of default on the company AND on every officer in default (capped at ₹3,00,000 each). For a 2-director company with a 90-day delay, the total exposure is ₹3,30,000.
2. Section 16 MSMED Act Compound Interest (17.25% p.a.)
Buyers must pay compound interest at 3× the RBI Bank Rate (currently 17.25% p.a. based on 5.75% Bank Rate) with monthly rests for every day of delay. Under Section 23 of the MSMED Act, this interest is permanently non-deductible from business income.
3. Section 43B(h) Income Tax Disallowance
Under Section 43B(h) of the Income Tax Act, 1961 (renumbered Section 37(2)(g) from TY 2026-27), delayed principal amounts are disallowed as business expenses in the year of accrual, causing a direct 25.17% corporate tax outflow.