MSME Compliance: All You Need to Know

You may be a micro, small or mid-sized enterprise, or even if you are a large MNC operating in India, compliance is unavoidable. When you comply with the laws and regulations, you stand a better chance of securing subsidies from the government and maintaining your business in an uninterrupted manner. In this article, we will discuss MSME compliance.

What are the different types of companies?

Companies are classified in several ways and using various terminologies. As a business, under one method of classification, you could be classified as a small business, a mid-sized business or a large business depending on the number of employees. Your business could also be a private or public company based on ownership. The MSME Act however classifies companies as micro, small and mid-sized enterprises and issues compliance that they must manage.

MSME Classification Based on Enterprises in Manufacturing and Services Segments

1. Micro

Investment: Less than INR 1 Crore

Turnover: Less than INR 5 Crores

2. Small

Investment: Should not exceed INR 10 Crores

Turnover: Should not exceed INR 50 Crores

3. Medium

Investment: Should not exceed INR 50 Crores

Turnover: Should not exceed INR 250 Crores

Why is MSME Compliance Important?

1. Legally Safe

Compliance is a legal requirement and every MSME business must be compliant. Else it could invite huge fines and legal action, leading to business disruption.

2. Building Credibility

Compliance helps MSMEs build trust with investors and other stakeholders, increasing their credibility as a business and improving the brand reputation.

3. Helps Create a Level Playing Field even at Lower Levels

Since medium, small and even micro businesses are subject to appropriate compliance, it helps create a level playing field even for small and mid-sized companies.

4. Ensuring Timely Payments

Compliance can also help ensure that MSME suppliers receive their payments on time. The MSME Form-1 is a way for clients to report their timely payments owed to registered MSME companies.

5. Growing Exports

MSME Compliance can also help MSMEs grow their exports by having all the necessary documents like invoices, packing lists, and other documents in place. These documents certify that the exporter is compliant with all regulations in India and even for the country they are exporting to.

What Are the MSME Compliances in India?

The MSME compliances and MSME vendor compliances that you should be aware of are:

• All MSMEs operating in India must follow a specific type of compliance, as specified by the laws of the government and other states.
• Section 9 of the MSMED Act specifies how the MSME Form 1 must be filled out and states that the said form should be filed on time.
• MSME Form 1 details must be submitted to the Central Ministry every 6 months if you have MSME suppliers.
• A director/CEO/CFO can digitally sign the MSME Form 1 if they are authorized by the company to do so.
• DIN details for the director, manager, CEO, CFO must be provided. The PAN card details must also be submitted.
• For suppliers, the FYI form, due date and the amount due etc. must be provided on time to the authorities.

What Are the Risks of Non-Compliance for MSMEs?

The risks of non-compliance are many for MSMEs and for those who have MSME vendors. Here they are:

Operational Risks

Non-compliance might mean disruptions to operations either because of legal action by authorities or disapproval from stakeholders involved.

Government Penalty

The MSME would need to pay a penalty for the non-compliance which would be a hefty sum of money.

Legal Prosecution

Non-compliance can also lead to legal prosecution by someone who is affected by the lack of compliance or has a special interest in the case.

Loss of Brand Reputation

There is also the risk of such non-compliance affecting the brand reputation, leading to negative discussions on social media.

Financial Burden

If you do not pay your employees on time, then you will have to compensate them later adequately. This means overdue wages and additional pay that you may need to pay them.

Why Do You Need an MSME Compliance Partner?

An MSME compliance partner will help ensure that your MSME compliance is on track, firstly by updating the compliance policies within the company to reflect the changes made by regulatory authorities and by documenting and training your employees on compliance, in addition to management itself.

Frequently Asked Questions

What is MSME compliance?

Adhering to the laws and regulations set by both state and central governments is called MSME compliance. The laws are laid down separately by both the state and central governments.

What is the penalty for non-compliance of MSME?

Non-adherence to the laws and regulations set by the state and central governments can lead to big penalties such as fines and legal action which could disrupt the business.

Which business comes under MSME?

Several businesses across industries can come under MSME. Some of the industries that MSMEs can belong to are food and beverages, manufacturing, services (both IT and Non-IT), and healthcare and wellness.

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