Are Your Suppliers Registered Under MSME (UDYAM)?

Simran Gupta |Updated on: April 15, 2024

Thanks to the UDYAM registration scheme of the Government of India, MSMEs today have less risk of running their operations without any disruptions. However, since this process is not mandatory, one of the biggest challenges for business owners is checking if their MSME suppliers are registered under UDYAM.

In this blog, we will explain some ways to find out if your suppliers are registered under the MSME UDYAM Scheme. We will also discuss the amendments to MSME payments from 1 April 2024 and the importance of the MSME 1 Form.

Things to Note When Dealing with Registered MSME Suppliers

There are primarily 3 things that businesses should keep in mind when dealing with MSME suppliers that are registered under UDYAM (MSME):

45-day and 15-day Payment Rule

Companies dealing with MSME-registered suppliers should follow the payment rules as per the MSME Act of 2006. Here are the important concepts regarding these rules:

When companies and MSME suppliers don’t agree on a credit period (date of payment) – companies should pay the suppliers within 15 days from the date of receiving goods/services.
When companies and MSME suppliers agree on a credit period of more than 45 days, companies should pay the suppliers within 45 days from the date of receipt of goods/services.
When companies and MSME suppliers agree on a credit period of more than 15 days but less than 45 days, companies should pay the suppliers within the time that they have agreed upon mutually (30, 25, 40 days or whatever was agreed upon in writing).
When companies don’t pay the suppliers on time, they are liable to pay interest charges that are thrice the rates specified by the RBI.

This rule was implemented to protect MSME-registered suppliers against delayed or defaulted payments from companies dealing with them.

MSME Form 1

One of the primary compliance policies that businesses should know when dealing with MSME-registered suppliers is the MSME Form 1. Here are some important points about this form:

The Ministry of Corporate Affairs (MCA) issues the MSME Form 1. This is a return form, and the MCA introduced this on 22 January 2019 to lend more credibility to the MSME Development Act of 2006.
MSME Form 1 is one of the many guidelines the MCA has issued to ensure transparency in the running of the MSMEs.
MSME Form 1 is a half-yearly return that businesses dealing with MSME-registered suppliers should furnish.
This return contains details of all their outstanding payments to these suppliers.
The main objective of the MSME Form 1 is to track the companies that owe payments to the MSME suppliers. This ensures that these payments are followed up regularly so that suppliers get their payments on time.

Disallowance of Expenses

In a recent development, the Finance Ministry introduced the amendments mentioned below to MSME payments under Section 438 (h) of the Income Tax Act of 1961. These will be implemented from 1^st April 2024. These include:

If companies don’t pay the MSME suppliers within the 45-day or 15-day cycle but pay at a later date within the same financial year, they can claim disallowance in the same year when expenses were accrued.
However, if payments are not made within the same financial year, they can claim for deductions only in the year of actual expenses, not when accrued.

How to Know if Suppliers are Registered Under MSME UDYAM?

If you are uncertain about the status of the UDYAM registration of your suppliers, here are some ways in which you can find out about the same:

Check the supplier’s invoice

Suppliers who register under UDYAM get a unique MSME Registration Number. If you check their invoices thoroughly and spot this number, it means that they are registered under the UDYAM scheme.

The invoice also states whether a particular invoice is categorised as micro, small, or medium. This will give you an idea of the status of your supplier’s business.

Check on the official portal of MSME

Usually, the invoice will tell you all the details about suppliers' MSME registration status. However, if you are unable to spot these details through the invoice, you can use the suppliers' PAN and AADHAAR numbers to check for the status.

To verify your supplier’s status using this feature, you can use your own credentials to validate your AADHAR and enter the official MSME portal.

Here, choose the option “Organizational Specifics.” Choose the type of organisation you are looking for (sole proprietorships, partnership firms, cooperative societies, and more).

Get the suppliers’ PAN details from their invoices and enter them next to the type of organisation. If you get the message” UDYAM Registration has already been done through this PAN,” it means the supplier is registered under UDYAM.

Bottom Line

Business owners should first ensure the UDYAM (MSME) registration of suppliers to comply with these new rules. All the new payment terms under the MSME Act of 2006 and the disallowance of expenses under the Income Tax Act of 1961 apply to registered suppliers only.