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Rödl & Partner opens new office in Waterloo, Canada |
Rödl & Partner opens new office in Waterloo, Canada |
Rödl & Partner opens new office in Waterloo, Canada |
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Definition of MSME
In accordance with the provision of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are defined according to their annual revenue (i.e. sales) of business. As approved by the Union Cabinet:
a Micro enterprise, where the investment in Plant and Machinery or Equipment does not exceed INR 10 Million and turnover does not exceed INR 5 Million;
a Small enterprise, where the investment in Plant and Machinery or Equipment does not exceed INR 100 Million and turnover does not exceed INR 500 Million;
a Medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed INR 500 Million and turnover does not exceed INR 2.5 Billion.
Benefits to MSMEs
Timely payments by Customers;
Interest on delayed payments;
Reference to Micro and Small Enterprises Facilitation Council for recovery of Interest;
Under GST Act, the Small and Medium Enterprises have been accorded with a lot of benefits in terms of compliance reliefs given in the form of threshold exemptions, Composition levy schemes, the Quarterly filing of the GST returns to mention a few.
Apart from the above, there are various promotional, upgradation, credit and financial support related schemes from government for MSMEs.
Furnishing of MSME Returns
Companies who get their supplies of goods or services from Micro or Small Enterprises, are required to furnish half yearly return (Form MSME-1) with the registrar in respect of outstanding payments to Micro or Small Enterprises.
Accounting System For Companies
Now that companies are required to extract data related to delayed payments to Micro or Small Enterprises, companies need to have some process in place to identify such transactions. For this, companies can create separate group under “Sundry Creditors – Expenses” for all the suppliers who are registered under MSME Act. Companies can even prepare “Vendor Creation Forms” for all new vendors. Such form should request for MSME registration details along with other basic details.
Treatment of “Provision for interest” is yet another challenge due to MSME Act. As prescribed in the Act, interest has to be paid, if a company fails to make payment within agreed period of time or 45 days, whichever is earlier. Some are of the view that though the supplier may not demand for interest payment after payment of invoice value but provision for such interest payable should be made in the books of accounts. There can be contrary views in this regards as some may argue that MSMEs may not take legal action against defaulting company and lose such customers for want of interest amount. Therefore, provision for interest may or may not be created in the books of accounts.
MSME disclosure requirements in Annual statement of accounts
Any company who is required to get its annual accounts audited under any law for the time being in force, such company shall mention whether the company had any transaction with Micro & Small Enterprises, the principal amount and the interest due thereon remaining unpaid to such suppliers as at the end of each accounting year as an additional information in his annual statement of accounts;
As interest provisions are not applicable to Medium Enterprises, disclosure requirements are also not required.
Dis-allowance under Income Tax Act, 1961
Notwithstanding anything contained in the Income-tax Act, 1961, the amount of interest payable or paid by any company, under or in accordance with the provisions of MSME Act, 2006, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction;
The same also needs to be reported in Form 3CD of Tax audit report.
From The Newsletter
Newsletter India
Issue 12/2020
Contact
Martin Wörlein
Partner, Head of India practice
+49 911 9193 3010
Send inquiry
How We Can Help
R
ö
dl & Partner in India
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