MSMED Amendment Act 2026: What Starts on 15 October for MSME Payments and TReDS
The MSMED Amendment Act 2026 starts in phases. From 15 October 2026, Central PSUs must settle MSME invoices through RBI-authorised TReDS platforms, and buyers who do not disclose dues to micro and small suppliers face graded penalties. The 90-day dispute timelines were not notified on 12 October 2026, so they were not in force as of 14 October 2026.
What does the MSMED Amendment Act 2026 change from 15 October?
The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 changes the MSMED Act, 2006, the law on MSME registration, payments to small suppliers and payment disputes. Parliament passed it in August, and it received the President's assent on 13 August 2026 as Act No. 16 of 2026. It did not take effect on that day. The Act lets the Central Government bring each part into force on a date it notifies.
That notification came on Monday, 12 October 2026. The Ministry of MSME's notification S.O. 5575(E) brings most of the Act into force on Thursday, 15 October 2026, and one more section on 15 December 2026. Three sections, the ones that speed up payment disputes, were left out.
For anyone who sells to, or buys from, a small business, the dates matter more than the headlines.
| Date | What happens |
|---|---|
| 13 August 2026 | President's assent. Act No. 16 of 2026 published in the Gazette |
| 12 October 2026 | MSME Ministry notifies commencement dates (S.O. 5575(E)) |
| 15 October 2026 | Sections 2 to 7, 11 and 13 to 17 of the Amendment Act come into force |
| 15 December 2026 | Section 12 (new make-up of MSE Facilitation Councils) comes into force |
| Not yet notified | Sections 8, 9 and 10 (dispute timelines, recovery of awards, release of deposits) |
The MSME Ministry's notification of 12 October 2026 brings sections 2 to 7, 11 and 13 to 17 of the 2026 Amendment Act into force on 15 October 2026, with section 12 following on 15 December 2026.
This guide explains what starts, what does not, and what it means for receivables, invoice discounting and working capital.
What comes into force on 15 October 2026?
Section numbers below are the Amendment Act's own. Each one changes a section of the 2006 Act.
| Amendment Act section | What it does | Who it affects |
|---|---|---|
| 2 and 3 | Defines the Development Commissioner (MSME) and puts that office on the national MSME Board | Ministry and Board |
| 4 | Writes the twin test, investment in plant and machinery and turnover, into the Act itself | All MSMEs |
| 5 | Replaces section 8: a national digital platform for voluntary MSME registration, with optional State platforms | All MSMEs |
| 6 | A small drafting change to section 14 | None in practice |
| 7 | New section 15A: every Central Public Sector Enterprise must settle invoices for goods and services bought from MSMEs through an RBI-authorised TReDS platform | CPSEs and their MSME suppliers |
| 11 | Replaces section 20: States must set up an adequate number of MSE Facilitation Councils, and may give them staff and digital systems | Micro and small suppliers with payment disputes |
| 13 | New section 22A: CPSEs and notified entities must disclose MSME invoices routed and settled through TReDS | CPSEs and notified buyers |
| 14 | Replaces section 27 and adds section 27A: graded penalties that start with a warning, in place of a criminal fine from the first default, decided by the Development Commissioner | Buyers with audited accounts; anyone filing registration details |
| 15 and 16 | Rule-making powers for the Centre and the States | Ministry and States |
| 17 | Saving clause: earlier notifications and actions continue where consistent with the amended Act | Everyone |
Source: MSMED (Amendment) Act, 2026 and notification S.O. 5575(E), Gazette of India.
Two points stand out. First, the classification limits do not change. The limits notified from 1 April 2025 still apply: micro up to ₹2.5 crore of investment and ₹10 crore of turnover, small up to ₹25 crore and ₹100 crore, and medium up to ₹125 crore and ₹500 crore. Second, Udyam stays. The MSME Ministry has said the amendment gives the Udyam portal permanence as the registration platform, and it reported 9.16 crore registrations on Udyam on 7 August 2026.
What is not in force yet?
The faster dispute process is the part most small suppliers waited for. It is not in the 12 October notification.
| Amendment Act section | What it will do | Status as of 14 October 2026 |
|---|---|---|
| 8 | Mediation within 90 days of first appearance; reference to arbitration within 30 days of failed mediation; award within 90 days of pleadings; jurisdiction where the supplier is registered; online hearings | Not notified |
| 9 | New section 18A: settlements and awards recoverable as arrears of land revenue, and treated as debts under the Insolvency and Bankruptcy Code | Not notified |
| 10 | New section 19: buyer deposits 75% to challenge an award, and the court must release at least 50% of the award to the supplier if the challenge runs past six months | Not notified |
Source: MSMED (Amendment) Act, 2026 and S.O. 5575(E).
The 90-day mediation and award timelines in the MSMED Amendment Act 2026 were not among the provisions notified on 12 October 2026, so they had not come into force as of 14 October 2026.
Until those sections are notified, the current sections 18 and 19 continue. Today a buyer that wants to challenge an award must still deposit 75% of the amount, as the 2006 Act requires, and the court may release a part of it to the supplier. The fixed minimum release of 50% after six months is not yet law. Watch for a further notification before relying on any of the new timelines in a live dispute.
What does mandatory TReDS for Central PSUs mean for suppliers?
TReDS, the Trade Receivables Discounting System, is an RBI-authorised electronic platform where MSME invoices on large buyers are discounted by banks and NBFCs. The invoice is uploaded, the buyer accepts it, financiers bid, and the supplier takes the offer it prefers. On the due date, the buyer pays the financier. For a full comparison with factoring and bilateral discounting, see invoice discounting vs factoring vs bill discounting.
What was already in place?
The rule is not new in practice. The MSME Ministry notified on 30 June 2026 that all operating CPSEs must route the settlement of MSME invoices through TReDS. The Ministry said CPSEs must also disclose the invoices routed through TReDS and get a statutory auditor's certificate of registration and compliance in their annual audit.
What changes on 15 October?
Three things. The duty now sits in the Act itself, in section 15A, rather than only in a notification. The Central Government can extend it by notification to any other authority, body or entity that buys from MSMEs. And each State can do the same for its own public sector enterprises and bodies. Section 22A adds a matching duty to disclose the invoices settled through TReDS. The Act leaves the form and manner to rules from the Centre and the States.
From 15 October 2026, every Central Public Sector Enterprise must route the settlement of invoices for goods and services bought from MSMEs through an RBI-authorised TReDS platform, under section 15A of the amended MSMED Act.
Do suppliers have to discount every invoice?
No. Routing the settlement through TReDS is the buyer's duty. Whether to discount an accepted invoice early, or wait for the due date, stays the supplier's choice. The MSME Ministry describes it as an option for suppliers to convert approved invoices into cash before the due date. Financing on TReDS is without recourse to the supplier once the buyer has accepted the invoice.
The platforms are not small. Invoices worth ₹3.47 lakh crore were discounted on TReDS in 2025-26, according to the Ministry of MSME (PIB, 7 August 2026). The RBI also replaced its older TReDS rules with the Reserve Bank of India (Trade Receivables Discounting System) Directions, 2026, issued on 23 June 2026.
Illustrative example, assuming a ₹10 lakh invoice accepted by a CPSE buyer, 60 days left to the due date, and a discount rate of 9% a year set by the winning bid.
| Item | Amount |
|---|---|
| Invoice value | ₹10,00,000 |
| Discount (₹10 lakh x 9% x 60 / 365) | ₹14,795 |
| Cash to the supplier now, before any platform fees | ₹9,85,205 |
| Cost as a share of the invoice | About 1.48% |
The actual rate depends on the buyer's credit, not yours, because the financier is taking the buyer's risk. That is why TReDS can price well for a supplier with a strong buyer and a thin balance sheet.
The 45-day rule and 17.25% interest: what has not changed
The Amendment Act does not touch the payment deadline or the interest on late payment. Sections 15 and 16 of the 2006 Act still apply to micro and small suppliers. Medium enterprises are outside these two sections, though they are covered by the TReDS rule for CPSEs.
- The deadline. A buyer must pay by the date agreed in writing, and that date cannot be more than 45 days from acceptance of the goods or services. With no written agreement, the limit is 15 days.
- The interest. If the buyer pays late, it owes compound interest with monthly rests at three times the bank rate notified by the RBI, whatever the contract says.
- The tax rule. That interest is not deductible for the buyer, under section 23. Separately, since assessment year 2024-25, income-tax law has allowed a buyer to deduct a late payment to a micro or small supplier only in the year it is actually paid. Check how this applies under the Income-tax Act, 2025 with your tax adviser.
The RBI's 7 October 2026 policy decision moved the Bank Rate to 5.75%, with the repo rate at 5.50%. That moves the statutory interest too.
With the RBI Bank Rate at 5.75% from 7 October 2026, interest on late payments to micro and small suppliers under section 16 of the MSMED Act works out to 17.25% a year, compounded monthly.
Before the hike, with the Bank Rate at 5.50%, the figure was 16.5%. See what the RBI repo rate hike means for business loans.
Illustrative example, assuming a ₹10 lakh invoice from a micro supplier, paid after the agreed date, with interest at 17.25% a year compounded monthly (1.4375% a month) and the Bank Rate unchanged over the period.
| Months paid late | Statutory interest owed |
|---|---|
| 1 | ₹14,375 |
| 2 | ₹28,957 |
| 3 | ₹43,748 |
| 6 | ₹89,410 |
Formula: ₹10,00,000 x ((1 + 0.1725 / 12) ^ months minus 1). Few suppliers claim this interest from a large customer they want to keep. But the buyer must still disclose it under section 22, which is where the new penalties bite.
What do the new penalties mean for buyers?
Section 22 requires any buyer whose accounts are audited to show, in its annual accounts, the principal and interest unpaid to micro and small suppliers at year end, and the interest paid and due. From 15 October 2026, the penalty for not doing so changes.
| Contravention of section 22 by a buyer | 2006 Act | From 15 October 2026 |
|---|---|---|
| First | Criminal fine of at least ₹10,000 | Warning |
| Second | Same | Penalty of ₹10,000 to ₹50,000 |
| Third and later | Same | Fine of ₹50,000 to ₹1 lakh |
Source: MSMED Act, 2006, section 27(2), and MSMED (Amendment) Act, 2026, section 14.
From 15 October 2026, a buyer that does not disclose dues to micro and small suppliers in its audited accounts faces a warning, then a ₹10,000 to ₹50,000 penalty, then a ₹50,000 to ₹1 lakh fine.
The minimum amounts rise by 10% every three years, as the Central Government notifies. The Development Commissioner (MSME) decides penalties after a hearing. An appeal goes to the Secretary of the MSME Ministry within 30 days and must be decided within 60 days. Unpaid penalties are recovered as arrears of land revenue. Wilfully giving false registration details, or not supplying information an officer asks for, follows the same path: a warning first, then a penalty of ₹1,000 to ₹50,000.
The amounts are small for a large company. The real change is that the disclosure is now policed by a named officer with a fixed process, rather than left to a criminal court. For a developer or manufacturer buying from hundreds of small vendors, the note on MSME dues in the accounts is now worth reconciling with the vendor master every quarter.
How should suppliers fund the payment gap now?
For a supplier selling to a private buyer, the Act does not shorten the wait. The 45-day limit is the same, and the faster dispute route is not live yet. So the practical question is still how to fund the days between invoice and payment.
| Option | Fits when | Watch out for |
|---|---|---|
| TReDS | Your buyer is a CPSE, or a large corporate registered on a TReDS platform, and accepts the invoice | Pricing follows the buyer's credit; the buyer must accept on the platform |
| Invoice discounting | Your buyers are private companies not on TReDS, with steady invoice histories | Lenders set limits per buyer and check for invoices financed twice |
| Vendor bill discounting | You supply a large real estate developer that approves your bills | Needs the developer's approval of each bill; margin and tenor are set by the lender |
| Working capital (CC or OD) | Receivables are spread across many small buyers | Drawing power is based on stock and debtors, usually excluding old debtors |
For how lenders set a cash credit limit against debtors, see how banks calculate your working capital limit. For contractors and suppliers to developers, see vendor bill discounting for suppliers.
Illustrative example, assuming a supplier sells ₹6 crore a year to CPSE buyers, is paid on day 45, and instead discounts each accepted invoice on TReDS on day 5 at 9% a year.
| Item | Amount |
|---|---|
| Receivables tied up when paid on day 45 (₹6 crore x 45 / 365) | About ₹73.97 lakh |
| Receivables tied up when discounted on day 5 (₹6 crore x 5 / 365) | About ₹8.22 lakh |
| Working capital released | About ₹65.75 lakh |
| Yearly discount cost (₹6 crore x 9% x 40 / 365) | About ₹5.92 lakh |
| Yearly interest on ₹65.75 lakh of cash credit at 11% | About ₹7.23 lakh |
The comparison only holds if the discount rate is below your cash credit rate and the released cash actually reduces your CC usage. But it shows the order of size: on these assumptions, about ₹66 lakh is released for under ₹6 lakh a year.
What should suppliers and buyers do now?
For micro and small suppliers:
- Check your registration. Confirm your Udyam certificate and category. Sections 15 and 16 protect micro and small enterprises only.
- Get the terms in writing. The written agreement decides whether the limit is 15 or 45 days. Record the acceptance date of every invoice.
- Join a TReDS platform if you sell to CPSEs or large corporates. CPSEs must now settle through one.
- Compare discounting costs. Put the TReDS rate, any bilateral discounting offer and your CC rate side by side for each large buyer.
- Keep dispute papers ready, but do not plan around the 90-day timelines until they are notified.
For buyers with audited accounts, including developers and manufacturers:
- Reconcile three numbers: the MSME dues note in your accounts, any MSME return you file, and your vendor master.
- Re-check vendor categories each year, since an enterprise can move between micro, small and medium.
- Fix the acceptance process, so invoices from micro and small vendors are accepted or rejected quickly and paid within the agreed limit.
The documents lenders ask for are listed in documents required for a business loan.
Which MoneyKarma products are most relevant?
| Product | Why it matters now |
|---|---|
| Invoice discounting | Cash against invoices on private buyers that are not on TReDS |
| Vendor bill discounting | Early payment on approved bills raised on large real estate developers |
| Working capital | A CC or OD limit for receivables spread across many buyers |
If you need funds without offering property, see MSME loans without collateral.
How MoneyKarma helps
MoneyKarma is a loan distribution platform for Indian businesses and real estate developers, with 90+ lenders. Not a lender. If your cash is tied up in receivables, we can help you compare invoice discounting, vendor bill discounting and working capital structures across lenders, including limits per buyer, pricing and tenor, and check which fits your buyers. Our average response time is 24 hours, and we coordinate with the lender you choose. The lender makes the credit decision. Share your requirement.
This guide is general information, not financial, legal or tax advice. Legal provisions are as notified up to 14 October 2026, and the Bank Rate is as of 7 October 2026. Illustrative examples are not loan offers. Confirm current terms with your lender and your legal or tax adviser.