Parliament has passed the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 — clearing the Lok Sabha on August 7, 2026, following its passage by the Rajya Sabha on August 3. The Act amends the MSMED Act, 2006 with the stated objective of facilitating the growth and development of the MSME sector and addressing one of its most persistent problems: delayed payment by buyers to MSME suppliers.
For small businesses, vendors, startups and entrepreneurs — especially those supplying goods or services to larger companies or government entities — understanding what the law already provides and what has now changed is essential.
The Existing Framework — What the MSMED Act Already Says
Before the amendment, the MSMED Act, 2006 already contained important protections for MSMEs on payment:
- Section 15: A buyer is required to make payment to an MSME supplier within the time agreed in writing, or if no agreement exists, within 45 days from the date of acceptance or deemed acceptance of goods or services
- Section 16: If payment is delayed beyond the stipulated period, the buyer is liable to pay compound interest at three times the bank rate notified by the Reserve Bank of India — a punitive rate designed to deter delay
- Section 18: Disputes between MSMEs and buyers can be referred to the Micro and Small Enterprises Facilitation Council (MSEFC) in each state for conciliation and, if that fails, arbitration
- Income Tax Act implications: From AY 2024-25 onwards, payments made to MSMEs after the 45-day deadline are not deductible as an expense under the Income Tax Act in the year of payment — they are deductible only in the year actual payment is made. This creates a significant tax disincentive for buyers who delay
What the 2026 Amendment Addresses
The key changes brought in by the 2026 Amendment include:
- Updated classification thresholds — aligning the definition of Micro, Small and Medium enterprises with the changing economic landscape to ensure more businesses are covered by the Act's protections
- Enhanced enforcement of TReDS — the Trade Receivables Discounting System, which allows MSMEs to get early payment on their invoices through financiers, is now mandated for all operational Central Public Sector Enterprises. MSMEs supplying to CPSEs now have a formal channel for faster payment
- Strengthened dispute resolution — the MSEFC mechanism, which was often slow and underutilised, is addressed in the amendment with the aim of making facilitation councils more effective
- Ease of doing business provisions — streamlining registration, compliance, and grievance processes for MSME units
TReDS platforms allow MSMEs to upload their invoices after delivery of goods or services. Financiers (banks and NBFCs) then bid to purchase those invoices at a discount, giving the MSME immediate payment rather than waiting 30, 45, or 90 days. The buyer then pays the financier on the original due date. This is a significant tool for managing cash flow — particularly for smaller suppliers who cannot afford to wait months for payment from large buyers.
What MSMEs and Startups Should Know Right Now
Practical Steps
Ensure your MSME registration is current on the Udyam portal. The protections under the MSMED Act — including the 45-day payment rule, compound interest, and MSEFC dispute resolution — are available only to registered units. Registration is free and online at udyamregistration.gov.in
Always have a written agreement specifying the payment timeline. The 45-day default period is a fallback — your contract can specify a shorter period. A written agreement also protects you in MSEFC proceedings.
Issue formal demand notices when payment is delayed — stating the invoice date, the amount due, the applicable rate of interest under Section 16, and the date from which interest runs. This creates a clear legal record.
File a reference before the Rajasthan MSEFC if the buyer does not pay after a formal demand. The Facilitation Council first attempts conciliation; if that fails, the matter is referred to arbitration under the Arbitration and Conciliation Act.
Leverage the income tax provision when negotiating payment with large buyers — remind them that delayed payment to you is not tax-deductible for them in the year the delay occurs. This is a strong commercial incentive for timely payment.
If you supply to CPSEs, explore TReDS registration now that the mandate extends to all operational central public sector enterprises. This provides faster access to your receivables without depending on the buyer's payment cycle.
The MSME sector constitutes the backbone of India's employment and export economy. The MSMED Act's delayed payment provisions — and the 2026 amendments strengthening them — represent a direct legal tool for small businesses to enforce their rights against larger, more powerful buyers. Knowing these rights and using them is the difference between a sustainable business and a cash-strapped one.