MSMED Amendment Act 2026: What Changed on 15 October and What Still Waits

If you run a small manufacturing unit or a service business, you probably have at least one customer who pays "after 90 days, as usual". The law has said for almost twenty years that this is not usual. A buyer has to pay a micro or small enterprise within 45 days at most, and pay steep interest if it doesn't.

Parliament amended that law in August 2026. On 12 October 2026, the Ministry of MSME issued notification S.O. 5575(E), bringing most of the amendments into force from 15 October 2026. One more part starts on 15 December 2026. The reforms most suppliers were waiting for, the fixed timelines for disputes and faster recovery, have not been given a start date yet.

This article explains what has changed, what hasn't, and what suppliers and buyers should do now.

The Act in brief

The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 (Act No. 16 of 2026) amends the MSMED Act, 2006. The Rajya Sabha passed the Bill on 3 August 2026, the Lok Sabha on 7 August 2026, and it was published in the Gazette on 13 August 2026.

The Act allows different provisions to start on different dates. That is exactly what has happened, so it matters which part of the Act you are relying on.

What came into force on 15 October 2026

Notification S.O. 5575(E) brought sections 2 to 7, 11 and 13 to 17 of the Amendment Act into force from 15 October 2026. In practical terms:

1. Classification by investment and turnover. MSMEs are classified by their investment in plant and machinery or equipment, together with their turnover. The amendment gives the government the power to set the limits by notification. It does not itself change the current limits, so check the latest notification before you describe your business as micro, small or medium in a contract or invoice.

2. Free, voluntary registration. Registration is now on a national digital platform, free of cost and voluntary, and States may set up their own platforms. Voluntary does not mean unimportant. If you want to rely on the delayed payment protection, approach the Facilitation Council or show a buyer that you are covered, your registration is the first thing anyone will ask for.

3. Central PSUs must settle MSME invoices through TReDS. Central Public Sector Enterprises have to route the settlement of invoices for goods and services bought from MSMEs through an RBI-authorised Trade Receivables Discounting System (TReDS) platform. They must also disclose those invoices. A ministry order had already required this from June 2026, and the Act now puts it on a statutory footing. For a supplier to a PSU, this means your invoice can be discounted on a TReDS platform, so you get paid by a financier before the PSU pays.

4. More Facilitation Councils. States can set up additional Micro and Small Enterprises Facilitation Councils (MSEFCs). Where a single Council handles an entire state, the backlog is a real problem, so this may help over time.

5. Penalties instead of prosecution. Penalties are now imposed through an adjudication process rather than criminal prosecution, with a right of appeal. For a buyer who fails to disclose unpaid MSME dues in its accounts, the scheme is:

• first instance: a warning
• second instance: a penalty of ₹10,000 to ₹50,000
• third and later instances: a penalty of ₹50,000 to ₹1 lakh

The Development Commissioner in the Ministry of MSME is the adjudicating officer, and an appeal lies to the Secretary of the Ministry.

What starts on 15 December 2026

Section 12 of the Amendment Act, which sets the new composition of the Facilitation Councils, starts on 15 December 2026. Each Council will have three to five members. The chairperson must be an officer not below the rank of Joint Director, and at least one member must have a legal background. The legal member is a welcome change, because most MSEFC proceedings end up turning on legal questions: limitation, whether the supplier was registered at the right time, and whether there was a contract at all.

What has no start date yet

The changes to the dispute process are in sections 8 to 10 of the Amendment Act, and those have not been notified. Until they are, the following are law on paper but not yet in force:

• mediation to be completed within 90 days of the first appearance
• a failed mediation to move to arbitration within 30 days
• an arbitral award within 90 days of the close of pleadings
• recovery of settlements and awards as arrears of land revenue, including in the state where the buyer's assets are located
• release of at least 50% of the awarded amount to the supplier if the buyer's challenge has been pending for more than six months

So if you file before a Facilitation Council today, the current procedure under section 18 of the MSMED Act still applies, without the new deadlines.

What has not changed at all

This is the part most headlines leave out. The core payment rights of a micro or small supplier are the same as before:

• The 45-day limit. A buyer must pay on the date agreed in writing, and that date cannot be more than 45 days from the day the goods or services are accepted (or deemed accepted). Where nothing is agreed in writing, the limit is 15 days.
• Interest on late payment. If the buyer pays late, it owes compound interest with monthly rests at three times the bank rate notified by the RBI, from the date payment was due. A clause in your contract cannot reduce this.
• The 75% deposit. A buyer who challenges a Council award in court must first deposit 75% of the amount awarded. That rule has been in the Act since 2006.
• The income tax angle for buyers. Under income tax law, a buyer that pays a micro or small enterprise late generally cannot claim the expense as a deduction until the year it actually pays. That rule, introduced as section 43B(h), is a separate reason buyers pay attention to the 45-day limit.

The 45-day limit and the interest protect micro and small enterprises. Medium enterprises are counted as MSMEs for classification, but the delayed payment provisions are written for micro and small suppliers.

What MSME suppliers should do now

1. Check your registration and category. Make sure your registration is current and shows the correct category. Note the date you registered, because the date of registration compared with the date of the contract is often argued before the Council.

2. Put the payment terms in writing. State the credit period in the purchase order or contract, and keep it within 45 days. Mention your registration number on your invoices.

3. Keep proof of acceptance. The 45 days run from acceptance. Delivery challans, GRNs, acceptance emails and completion certificates are what prove when the clock started.

4. Supplying to a PSU? Use TReDS. If you supply to a Central PSU, register on a TReDS platform so that your invoices can be discounted.

5. Don't wait for the new timelines. If a buyer is already late, the right to interest is running now. Send a written demand, and if it isn't paid, approach the Facilitation Council (through the MSME Samadhaan portal) or consider your other remedies. Our guides on MSME delayed payments, the 45-day rule and the Samadhaan portal and on what to do when a company is not paying your invoice walk through the options.

What buyers should do now

1. Ask your suppliers for their MSME status. You can't comply with the 45-day limit if you don't know which suppliers are micro or small.

2. Review your payment cycle. A standard 60 or 90-day credit period does not work for micro and small suppliers.

3. Disclose unpaid MSME dues correctly in your accounts. Non-disclosure now carries penalties that increase with each repeat, after a first warning.

4. Treat Council notices seriously. A Council can award the principal and compound interest, and challenging the award later means depositing 75% of it first.

Frequently asked questions

Is the whole MSMED Amendment Act in force?

No. Most of it has been in force since 15 October 2026. The Council composition changes start on 15 December 2026. The new mediation and arbitration timelines, recovery as arrears of land revenue and the 50% release rule do not yet have a commencement date.

Has the 45-day payment rule changed?

No. A buyer still has to pay a micro or small enterprise within the agreed period, which cannot exceed 45 days from acceptance, or within 15 days where nothing is agreed.

Do I need to be registered to claim interest for delayed payment?

Registration is now free and voluntary, but in practice the Facilitation Council will look at whether you were registered, and when. Register before you rely on the Act, and keep the certificate with your contract papers.

I'm a medium enterprise. Do these protections apply to me?

The delayed payment provisions, including the 45-day limit and the interest, are written for micro and small suppliers. Medium enterprises should rely on their contract and the ordinary recovery remedies.

When will the 90-day mediation and arbitration timelines apply?

Only once the government notifies a start date for those provisions. We'll update this article when it does.

Sources: Ministry of MSME notification S.O. 5575(E) dated 12 October 2026, as reported by TaxGuru and transclew; the MSMED (Amendment) Act, 2026 as summarised by Juris Hour and LiveLaw. This article is general information about the law as of 30 October 2026, not legal advice for any particular case.