Several compliance laws have been implemented recently to protect MSME businesses from delayed payments, especially through the updates released under section 43 B(h) and Form 3CD (Clause 22) of the Income Tax Act, along with mandatory delayed payment reporting in MSME Form 1 under MCA.
The government has also stretched MSME classification thresholds to let businesses grow effortlessly without losing MSME benefits. Even the implementation of new labour codes, applicable to companies of all sizes, is a well-thought-out policy towards faster and simplified wage settlement and protect India’s workforce.
In light of these developments, companies must upgrade and digitise their processes to avoid the cost of delays and the stress of manual errors.
New MSME Compliance Obligations
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Section 43B(h) of the Income Tax Act
Payments for goods and services bought from a micro or small enterprise must be made within 15 days (if there is no written agreement) or 45 days (if there is a written agreement).
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Form 3CD (Clause 22) of the Income Tax Act
Tax auditors must disclose delays in payments to SMEs, as interest payments on these delays and pending amounts beyond the prescribed period are not allowed as tax deductions.
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MSME Form 1 under MCA
Companies must disclose all payments to SMEs that were delayed beyond 45 days during half-year reporting, even if they were later paid, and must also mention the reason for each delay.
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Revised MSME Thresholds
The government increased the turnover/investment limits for MSME classification.
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New Labour Codes
The new Labour Codes require the maintenance of digital records and mandatory full and final settlements within 2 working days of an employee’s exit.
How Sage X3 Streamlines MSME & Regulatory Compliance?
1. Meet Payment Deadlines
Automated due-date logic in Sage X3 ensures timely payments to MSME suppliers, as required under Section 43B(h).
2. Tax Audit Disclosure
Keep a track of delayed payments and automatically calculate interest (3× RBI bank rate), ensuring accurate Form 3CD (Clause 22) reporting.
3. Half-Yearly Reporting
Detailed payment trails identify payment made after the 45-day deadline, including settled invoices, with documented reasons for Form-1 submission.
4. Manage MSME Status
Configuration of MSME supplier categories according to the revised turnover and investment ensures correct payment timelines, tax compliance, and reporting.
5. Wage Compliance
Maintain complete employee salary records digitally, process payments, and fast-track full and final settlement with HR integration.
Business Benefits
⏩Reduced tax and penalty risk
⏩Simplified audit compliance
⏩Stronger MSME vendor relationships
⏩Automation, instead of manual tracking
⏩Improved cash flow visibility
Conclusion
As government brings more transparency in MSME compliance reporting, companies must be proactive in their approach to quickly align with the evolving mandates.
Implementing systematic controls, enabling real-time visibility, and maintaining audit-ready data through Sage X3 not only makes you compliance-smart, but also provides a structured foundation to foster long-term vendor relationships and enforce better cash flow discipline.
Connect with us today to see how Sage X3 can simplify MSME compliance and reduce regulatory risk.
