MSMED Amendment Act 2026: What Is in Force From 15 October 2026, TReDS for CPSEs and New Penalties for Buyers
Key Takeaways
- Most of the MSMED Amendment Act 2026 (Act No. 16 of 2026) is in force from 15 October 2026, as recorded in the consolidated text of the MSMED Act, 2006 published on India Code by the Legislative Department.
- Every Central Public Sector Enterprise must route settlement of invoices for goods or services bought from micro, small and medium enterprises through an RBI-authorised TReDS platform (new section 15A), in the form and manner to be prescribed by the Central Government.
- Section 27 is substituted with graded penalties. A buyer that breaches section 22 (disclosure of dues to micro and small suppliers in audited accounts) is warned first, then faces a penalty of Rs 10,000 to Rs 50,000, and a fine of Rs 50,000 to Rs 1 lakh from the third contravention.
- Registration is to move to a national digital platform to be notified by the Central Government; filing is free and voluntary (substituted section 8).
- The new Facilitation Council composition (section 21) applies from 15 December 2026. The new dispute timelines, the 75% pre-deposit rule and land-revenue recovery (amending sections 8 to 10) are not marked in force in the consolidated text.
The MSMED Amendment Act 2026 received the President’s assent on 13 August 2026 and was published in the Gazette of India the same day. Section 1(2) of the amending Act lets the Central Government bring its provisions into force on different dates by Gazette notification. The consolidated text of the Micro, Small and Medium Enterprises Development Act, 2006, “as on the 15th October, 2026” on India Code, shows most amendments in force from 15 October 2026, one from 15 December 2026, and three amending sections not yet marked in force. This advisory sets out what has changed, who it affects and what buyers and their auditors should do now.
What is in force from 15 October 2026 under the MSMED Amendment Act 2026?
| Amending section | Provision of the 2006 Act | What it does | In force from |
|---|---|---|---|
| s.2 | s.2 | Defines “Development Commissioner” (new clause (da)); clauses (g), (h) and (m) now refer to section 7(1) as a whole | 15 Oct 2026 |
| s.3 | s.3(3)(o) | Development Commissioner replaces the Joint Secretary-level officer in clause (o) | 15 Oct 2026 |
| s.4 | s.7(1) | Classification by notification on both investment in plant and machinery or equipment and turnover | 15 Oct 2026 |
| s.5 | s.8 | National digital platform for free and voluntary registration | 15 Oct 2026 |
| s.7 | New s.15A | Mandatory TReDS settlement for CPSE purchases from MSMEs | 15 Oct 2026 |
| s.11 | s.20 | States to set up an adequate number of Facilitation Councils | 15 Oct 2026 |
| s.12 | s.21 | New Facilitation Council composition | 15 Dec 2026 |
| s.13 | New s.22A | CPSEs to disclose MSME invoices settled on TReDS | 15 Oct 2026 |
| s.14 | s.27 and new s.27A | Graded civil penalties and adjudication by the Development Commissioner | 15 Oct 2026 |
| ss.15, 16 | ss.29, 30 | New rule-making heads for the Central and State Governments | 15 Oct 2026 |
Sections 6 (a consequential change to section 14(2)) and 17 (saving) also form part of the Act. Section 17 provides that anything done, any action taken or any notification issued under the principal Act continues, so far as it is consistent with the amended Act, until revoked.
Section 15A: TReDS settlement for Central Public Sector Enterprises
New section 15A(1) states that, notwithstanding anything in the Act or any other law, every Central Public Sector Enterprise shall, for procurement of goods or services from micro, small and medium enterprises, “route the settlement of invoices through a Trade Receivables Discounting System platform, authorised by the Reserve Bank”. The form and manner are to be prescribed by the Central Government.
- Section 15A(2): the Central Government may notify any other authority, body or entity that must follow the same route.
- Section 15A(3): a State Government may notify State Public Sector Enterprises and other bodies for the same purpose.
- Section 22A: CPSEs and notified bodies must disclose the details of MSME invoices routed and settled through TReDS, in the form and manner to be prescribed.
The Explanation to section 15A defines TReDS as an electronic platform for financing or discounting trade receivables of MSMEs in accordance with RBI guidelines. For how those platforms work, see our note on the RBI TReDS Directions 2026.
For MSME suppliers to CPSEs: the obligation to route settlement sits with the CPSE. The rules on form and manner are to be prescribed by the Central Government, so check the procurement terms of each CPSE customer and keep your TReDS onboarding ready.
New penalties under section 27: what buyers and MSMEs now face
Substituted section 27 sets out a graded scheme.
| Contravention | First instance | Second instance | Third or later |
|---|---|---|---|
| Wilfully furnishing false information in the section 8 registration memorandum, or failing to comply with an order under section 26(2) to furnish information | Warning | Penalty of Rs 1,000 to Rs 50,000 | Penalty of Rs 1,000 to Rs 50,000 |
| Buyer contravening section 22 | Warning | Penalty of Rs 10,000 to Rs 50,000 | Fine of Rs 50,000 to Rs 1 lakh |
Section 27(3) raises the minimum penalty by 10% after every three years from the commencement of the amending Act, as notified by the Central Government.
Under new section 27A, the Development Commissioner is the adjudicating officer and must give a reasonable opportunity of being heard before imposing a penalty. An appeal lies to the Secretary of the Ministry of MSME within 30 days of receiving the order, and a late appeal may be admitted on sufficient cause. The appeal is to be disposed of within 60 days of filing. An unpaid penalty is recovered as an arrear of land revenue.
Why section 22 matters to every audited buyer
Section 22, which the amendment does not change, applies to any buyer required to have its annual accounts audited under any law. Such a buyer must disclose in its annual statement of accounts, among other items, the principal and interest remaining unpaid to any supplier at the end of each accounting year and the interest paid under section 16. A breach of section 22 now carries the graded penalty above. Auditors and finance teams closing FY 2026-27 accounts should treat the MSME disclosure as a penalty-backed item. The payment-timing rule in section 15 (no agreed period beyond 45 days from acceptance or deemed acceptance) is also unchanged; its income-tax effect is covered in our note on section 43B(h) and its move to section 37 of the Income-tax Act 2025.
Classification and registration: sections 7 and 8
Substituted section 7(1) lets the Central Government classify enterprises as micro, small or medium by notification, subject to limits on both (a) investment in plant and machinery or equipment and (b) turnover. Explanation 1 excludes the cost of pollution control, research and development, industrial safety devices and other items specified by notification from the investment calculation. The amended text does not itself set any limits; they come from the Central Government’s notification. Under section 17, a classification notification issued under the principal Act continues so far as it is consistent with the amended Act.
Substituted section 8(1) states that the Central Government “shall notify a national digital platform for free and voluntary filing of memorandum for registration” of MSMEs, in the form and manner to be prescribed. Under section 8(2), a State Government may notify its own State digital platform. The supplier’s registered address under section 8 is also the reference point used in the dispute provisions described below.
Facilitation Councils: sections 20 and 21
From 15 October 2026, substituted section 20 requires each State Government to establish an adequate number of Micro and Small Enterprises Facilitation Councils, which shall meet regularly at intervals and under a procedure prescribed by the State. From 15 December 2026, substituted section 21 fixes each Council at three to five members, chaired by an officer not below the rank of Joint Director, with at least one representative of micro or small industry associations and at least one member from the field of law.
What is not marked in force yet
Sections 8, 9 and 10 of the amending Act deal with delayed-payment disputes. They provide for a 90-day limit for mediation and a 90-day limit for the award after pleadings close (section 18). They also make a mediated settlement or award recoverable as an arrear of land revenue (new section 18A), and require a 75% deposit before any challenge to an award, with at least 50% released to the supplier if the challenge is pending for more than six months (section 19). The consolidated text on India Code as on 15 October 2026 does not mark these amendments in force and still prints the earlier sections 18 and 19. Their commencement is by Gazette notification under section 1(2) of the amending Act.
Action checklist for buyers, CPSE suppliers and auditors
- Audited buyers: review the section 22 disclosure of dues to micro and small suppliers in your accounts; a breach now attracts a warning and then a penalty or fine under section 27(2).
- MSMEs supplying CPSEs: confirm whether each CPSE customer has moved invoice settlement to TReDS under section 15A, and register on an RBI-authorised TReDS platform if you have not.
- All MSMEs: make sure the information in your registration memorandum is accurate; wilfully false information is now a penalty matter under section 27(1).
- Information orders: respond to any order under section 26(2) within the time given; non-compliance attracts the same graded penalty.
- Councils and disputes: note the new Council composition from 15 December 2026, and track the commencement of amending sections 8 to 10 before relying on the new timelines.
Sources
- Source: Ministry of Law and Justice (Legislative Department), The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 (No. 16 of 2026), Gazette of India Extraordinary, Part II Section 1, No. 32, 13 August 2026, egazette.gov.in.
- Source: The Micro, Small and Medium Enterprises Development Act, 2006, consolidated text as on 15 October 2026, indiacode.gov.in.
Need help with MSME payment compliance?
If you buy from MSMEs or supply to a Central Public Sector Enterprise, Tax Update India can help you map what the amendments mean for your contracts and accounts. Talk to an expert about your MSME payables and disclosures.
Disclaimer: This article is for general information only and reflects the Act and the consolidated text cited above as on 13 November 2026. It is not legal advice. Please consult a qualified professional before acting on it.
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