The Micro, Small, and Medium Enterprises (MSME) area assumes an essential part in India’s monetary scene, contributing fundamentally to work age and Gross domestic product development. Perceiving the area’s importance, the Indian government has presented the New MSME Act, which pointed toward tending to different difficulties faced by MSMEs. Simultaneously, the Goods and Services Tax (GST) system has gone through changes to improve and smooth out the duty framework, affecting the installment cycle for organizations the country over. This blog delves into the New MSME Act and its implications on the payment cycle, especially in the context of the revised Udyog Aadhar (MSME) Registration
The New MSME Act: A Glimpse
The Act, which came into effect from 1st July, 2020 replaces the erstwhile Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006. The Act aims to redefine the classification of MSMEs, enhance their ease of doing business, promote innovation and growth, and address challenges such as delayed payments.
Redefined Classification Criteria
The Act introduces new criteria for classifying enterprises as micro, small, or medium, taking into account both investment in plant and machinery or equipment and annual turnover. This shift is expected to provide more accurate categorization and better access to various incentives and benefits.
Promotion of Innovation
To foster innovation and technology adoption, the Act mandates that a certain percentage of the procurement budget of public sector undertakings (PSUs) be allocated for purchases from MSMEs. This can potentially boost demand for MSME products and services.
Tackling Delayed Payments
One of the critical aspects of the New MSME Act is its emphasis on resolving the issue of delayed payments. It prescribes a maximum payment period of 45 days for buyers to clear dues to MSMEs, failing which interest becomes payable. This provision aims to provide MSMEs with better liquidity and cash flow.
MSME Registration
In many nations, including India, the government is implementing the Micro, Small, and Medium Enterprises (MSME) registration program to offer a variety of advantages and assistance to businesses based on their size and revenue. While the particular cycle and necessities might shift starting with one country and then onto the next, here is an overall outline of how MSME enlistment functions in India:
- Visit the Udyam Registration Portal: The Indian government has launched the Udyam Registration Portal for online MSME registration. You can visit the portal at https://udyamregistration.gov.in/.
- Provide Required Information: You should give data about your business, including the Aadhar number of the entrepreneur or promoter, the kind of association, the PAN (Permanent Account Number) of the business, and other required information
- Verify Aadhar Number: For OTP (One-Time Password) verification, the Aadhar number will be used. Verify the accuracy of the Aadhar information.
- Fill in Business Details: Include details about your company’s location, industry, and investment/turnover on the online registration form.
- Submit the Application: Submit the application after providing all required information. Your registered mobile number will receive an OTP for verification.
- Get the MSME Certificate: Once the application is approved, you will receive an MSME certificate with a unique Udyam Registration Number. This certificate can be used to avail of various government benefits and schemes for MSMEs.
Revised GST Returns: A Primer
In line with the government’s efforts to simplify the tax regime and improve compliance, the GST returns filing process has undergone significant changes. The revised GST returns aim to reduce the compliance burden on businesses, increase transparency, and ensure that input tax credit (ITC) claims are based on accurate data.
Key Features of the Revised GST Returns
- Quarterly Returns for Small Taxpayers: The revised system introduces quarterly return filing for small taxpayers with an annual turnover below a specified threshold, thereby reducing the frequency of compliance for such businesses.
- Improved Matching of Invoices: The new system is designed to enhance the matching of invoices between suppliers and recipients, reducing the scope for mismatches and errors in claiming ITC.
- Auto-Population of Returns: The system is equipped with auto-population features that fetch data from the e-invoicing system, making it easier for taxpayers to file accurate returns.
Implications for the Payment Cycle
The revised GST returns have a significant impact on the payment cycle of businesses, especially MSMEs, in the following ways:
- Improved Cash Flow Management: With the introduction of quarterly returns for small taxpayers, businesses can better manage their cash flow by paying GST on a quarterly basis, aligning with their return filing frequency.
- Reduced Compliance Burden: The auto-population of returns and improved invoice matching reduce the chances of errors, ensuring that businesses claim their rightful ITC without delays, and positively affecting their cash flow.
- Prompt Dispute Resolution: The enhanced transparency in the GST system, with accurate invoice matching, can lead to faster dispute resolution, preventing prolonged disputes that can hamper a business’s financial health.
Synergy between the New MSME Act and Revised GST Returns
The New MSME Act and the revised GST returns are complementary in their efforts to streamline business operations and improve the payment cycle for MSMEs.
Timely Payments and Enhanced Cash Flow
The New MSME Act’s provisions for timely payments ensure that MSMEs receive their dues within the stipulated period, reducing working capital constraints. Simultaneously, the revised GST returns simplify the ITC claim process, enabling businesses to manage their cash flow effectively.
Reduced Compliance Burden
The revised GST returns alleviate the compliance burden by reducing the frequency of return filing for small taxpayers. This aligns with the New MSME Act’s objective of easing the regulatory environment for MSMEs.
Encouraging Digital Adoption
Both the New MSME Act and the revised GST returns promote the use of technology and digital platforms. This encourages MSMEs to embrace innovation, while the revised GST returns rely on e-invoicing and auto-population features for seamless compliance.
Challenges and Considerations of the new MSME act
These are some of the general challenges and considerations that policymakers often address when developing new legislation or regulations to support MSMEs. Keep in mind that specific challenges and solutions may vary from one country to another, and the contents of a “new MSME Act” would depend on the unique circumstances and priorities of the jurisdiction in question. Despite the positive impacts of these and the revised GST returns, challenges and considerations persist:
Implementation Challenges:
The effective implementation of these reforms at the ground level remains a challenge, especially considering the diverse nature of the Indian business landscape.
Compliance Awareness:
Many MSMEs may not be fully aware of the changes introduced by the New MSME Act and the revised GST returns, which can hinder their ability to benefit from these reforms.
Regulatory Changes:
The government may need to continuously monitor and refine these reforms based on feedback and evolving business needs.
Definition and Classification:
Defining and classifying MSMEs can be challenging as different countries use different criteria such as investment in plant and machinery, turnover, or number of employees. Ensuring a consistent and appropriate definition is crucial.
Access to Finance:
MSMEs often struggle to access financing from formal banking channels due to a lack of collateral, credit history, and high-interest rates. Any new MSME Act should address these issues and promote easier access to finance.
Regulatory Compliance:
MSMEs may find it difficult to comply with complex regulatory requirements, including taxation, labor laws, and environmental regulations. Simplifying and streamlining these regulations can help MSMEs thrive.
Technology Adoption:
Many MSMEs face challenges in adopting modern technology and digital tools, which are increasingly important for competitiveness. Providing incentives or support for technology adoption can be a consideration in new legislation.
Market Access:
Access to larger markets, both domestic and international, can be a significant challenge for MSMEs. Trade facilitation measures and market linkages should be part of any comprehensive MSME legislation.
Data Collection and Analysis:
Accurate data collection and analysis on MSMEs’ performance and needs are essential for designing effective policies and programs. Legislation can mandate the collection of relevant data.
Conclusion
The New MSME Act and the revised GST returns are pivotal steps towards improving the payment cycle and overall business environment for MSMEs in India. Timely payments, reduced compliance burden, and the encouragement of digital adoption can collectively empower MSMEs to thrive and contribute more significantly to the nation’s economic growth. However, it is essential for businesses and policymakers to work in tandem to ensure the successful implementation and continued evolution of these reforms, thereby fostering a more conducive environment for MSMEs to prosper in India’s dynamic economy.
