MSME - The Silent Advantage Every Business Should Know

There was a time when many businesses deliberately stayed small to continue enjoying the benefits available to MSMEs. Ironically, as businesses started growing, they often crossed the prescribed limits and lost those very benefits.

Recognising this challenge, the Government has revised the MSME classification in the recent Budget, allowing enterprises to expand without immediately moving out of the MSME ecosystem.

Yet, whenever I interact with business owners, I find that many have either not registered as MSMEs or are unaware of the practical benefits that come with such registration. Even professionals sometimes focus only on Section 43B(h) while overlooking the broader advantages.

Let us understand the revised provisions in a simple manner.

Revised Definition of MSMEs

With effect from 1st April 2025, the Government has enhanced the investment and turnover limits for MSMEs.

An enterprise has to satisfy both the investment and turnover criteria to fall within the respective category.

The revised limits are a welcome move as they allow businesses to scale operations without immediately losing MSME status.

Why Should Businesses Register as MSMEs?

For many entrepreneurs, MSME registration is merely another certificate. In reality, it can provide significant commercial and legal advantages.

1. Improved Access to Finance

Banks generally extend priority lending to MSMEs. Many Government-backed credit guarantee schemes are also available, making it easier for businesses to obtain loans with comparatively relaxed collateral requirements.

2. Protection Against Delayed Payments

Every entrepreneur understands one simple truth:

Profit looks good on paper, but cash flow keeps a business alive.

To protect MSMEs from payment delays, the MSMED Act prescribes strict timelines for release of payments by buyers.

This is perhaps one of the strongest protections available under the law.

3. Tax Implications under Section 43B(h) Old Income tax Act, 1961/ 37(2)(g) of New Income Tax Act, 2025

Since the introduction of Section 43B(h), MSME registration has gained even greater significance.

Where purchases are made from a Micro or Small Enterprise, deduction of the expenditure is allowed only if payment is made within the time limits prescribed under the MSMED Act.

If payment is delayed beyond the permissible period, the expenditure will be allowed only in the year in which payment is actually made.

It is important to remember that this provision does not apply to Medium Enterprises.

4. Better Opportunities in Government Procurement

Registered MSMEs enjoy preference in several Government procurement policies.

Eligible enterprises may receive exemptions from Earnest Money Deposit (EMD), participate in reserved tenders and benefit from procurement policies specifically designed for MSMEs.

5. Access to Government Schemes

MSMEs are eligible for several support measures including:

• Credit Guarantee Schemes
• Technology Upgradation Assistance
• Export Promotion Benefits
• Quality Certification Support
• Skill Development Programmes
• Entrepreneurship Development Initiatives

For a growing business, these incentives can significantly reduce costs and improve competitiveness.

Time Limit for Payment to MSMEs

This is the provision that has become the centre of attention after the introduction of Section 43B(h).

(Under the Income-tax Act, 2025 (effective from 1 April 2026), the provisions of erstwhile Section 43B(h) have been incorporated in Section 37(2)(g) without any substantive change in their applicability)

The law prescribes two situations.

Where There Is No Written Agreement

The buyer must make payment within 15 days from the date of acceptance of goods or services.

Where There Is a Written Agreement

The parties may mutually agree upon a credit period.

However, the agreed period cannot exceed 45 days.

In short:

• No written agreement → Maximum 15 days
• Written agreement → Maximum 45 days

Even if an agreement mentions 60 or 90 days, the MSMED Act does not recognise a credit period beyond 45 days.

What Happens If Payment Is Delayed?

The consequences extend beyond a strained business relationship.

The buyer becomes liable to pay:

• Compound interest with monthly rests
• At three times the RBI Bank Rate

Further, such interest is not allowable as a deduction under the Income-tax Act.

Where the supplier is a Micro or Small Enterprise, delayed payment may also result in postponement of deduction of the purchase expenditure under Section 43B(h).

In other words, a delay in payment may impact both cash flow and tax liability.

Conclusion

The revised MSME limits are more than just revised numbers—they represent an opportunity for businesses to grow while continuing to enjoy institutional support.

For entrepreneurs, MSME registration should be viewed as a strategic business decision rather than a compliance exercise.

For Chartered Accountants and tax professionals, it is equally important to identify clients who now qualify under the revised limits and advise them regarding registration, vendor management and compliance with Section 43B(h).

A small registration today can prevent large financial consequences tomorrow.

Disclaimer: The contents of this article are intended for educational and informational purposes only. Readers are advised to refer to the relevant provisions of the MSMED Act, applicable notifications and the Income-tax Act, or seek professional advice before taking any decision based on the above discussion.

Note: The writer can be reached on Twitter (X) at @caanuragwriter