Buyer shall be liable to pay interest to the seller if payment is not made 45 Days.

Government has enacted’’ The Micro, Small and Medium Enterprises Development Act, 2006’’ (MSMED Act 2006) with the object of promotion of MSME. This act contains many sections which may benefit you. One the important section I read recently is elaborated below:

Section 15 of MSMED Act 2006 which states that Buyer shall make payment to supplier of Goods and Services on or before the date agreed upon between them.

Where there is no mutual agreement, then payment period shall not exceed 45 Days. It means that if buyer fails to pay within time, he will be liable to pay interest at the rate agreed upon between them. Where interest rate is not in writing, it will be 3 time of the bank rate notified by RBI.

Further section 23 of MSMED Act 2006 states that Interest payable and paid by buyer shall not for the purposes of computation of income under the Income-tax Act, 1961,be allowed as deduction.

It’s quite small but useful section for all MSME facing cash flow crunch. I have seen thousands of invoices where conditions of payment are not specified. Sometime they forget to mention interest rate as well.

Always remember when agreement is silent; law is always behind you to protect your interest.

The following slabs have been prescribed under the MSMED Act to determine the status of the Enterprise:

S. No.Type of EnterpriseManufacturing Industry (Investment in Plant and Machinery)Service Industry (Investment in Equipments)
1MicroDoes not exceed Rs. 25 LakhDoes not exceed Rs. 10 Lakh
2SmallExceeds Rs. 25 Lakh but does not exceed Rs. 5 CroreExceeds Rs. 10 Lakh but does not exceed Rs. 2 Crore
3MediumExceeds Rs. 5 Crore but does not exceed Rs. 10 CroreExceeds Rs. 2 Crore but does not exceed Rs. 5 Crore

A person can obtain registration under the MSMED Act 2006 at his own discretion. Person can be a proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called.

However registration is mandatory for an industry engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, having investment in plant and machinery or more than one crore rupees but not exceeding ten crore rupees.

Benefits of enterprises registered under the MSMED Act 2006

1. Collateral Free loans from banks

2. A hefty 50% subsidy on  Patent registration

3. Stamp duty and Octroi benefits

4. Eligible for Industrial Promotion subsidy

5. Protection against delayed payments

6. Concession in electricity bills

7. Reimbursement of ISO Certification charges


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