Analysis of MSME under New GST Return Filling System

The recently implemented new GST return filing system brought with it many changes aimed at simplifying the process of filing returns.
Analysis of MSME - MSME - New GST Return Filling System - GST - GST Return - taxscan

The Micro, Small and Medium Enterprises Development Act (MSMED), 2006 was enacted to facilitate the promotion and development and enhance the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. The recently implemented new GST return filing system brought with it many changes aimed at simplifying the process of filing returns.

The key change introduced to the new system is the increase in the turnover limit for the classification of taxpayers for filing frequency. The MSMED Act, 2006 specifies 45 45-day credit period for the recipient of any goods or services to pay to the MSME supplier. It is included to protect the interest of the MSME business.

* Who Can Apply MSME Scheme?

The MSME registration eligibility depends on an entity’s annual turnover and investment. The following entities are eligible for MSME registration:

* Documents for Registration under MSME

The registration of MSME requires Adhaar and PAN details. There are no MSME registration fees and it does not require proof of documents. PAN and GST-linked details on investment and turnover of enterprises will be taken automatically by the Udyam Registration Portal from the Government databases since the portal is integrated with Income Tax and GSTIN systems.

* MSME Samadhan Portal

The Ministry of Micro, Small & Medium Enterprises (MSME) launched MSME Samadhaan on 30 October 2017. It was launched to empower micro and small entrepreneurs across the country. It enables them to directly register their cases about delayed payments by Central Ministries/Departments/CPSEs/State Governments.

The effectiveness of the portal in resolving delayed payment complaints depends on several factors, including the number of complaints filed, the response time of the concerned parties, and the efficacy of the dispute resolution mechanism. The ability to provide a time-bound and efficient mechanism for the resolution of delayed payment complaints.

* How to file and check status

The portal provides a platform for MSEs to file their complaints and track the status of their complaints. The portal also facilitates communication between the parties and ensures that the concerned parties are notified of the complaint and given a reasonable opportunity to respond.

  • Enter a valid User ID. OR Enter valid Case No.
  • Enter the valid verification code as given in the captcha image. The verification code is not case-sensitive.
  • Click on the Login button
  • Once you log in with valid credentials you will be redirected to your Dashboard where multiple actions can be done.

The Ministry of MSME has taken the initiative to file an online application by the supplier MSE unit against the buyer of goods/services before the concerned MSEFC of his/her State/UT. These will be viewed by the MSEFC Council for their actions. These will be also visible to Concerned Central Ministries, Departments, CPSEs, State Governments, etc for proactive actions.

* Analysis of Payment Cycle Problems

The MSME can declare the details relating to this supply anytime in the three months of the relevant quarter by the 11th of the month following the quarter. The recipient of the supply, on the other hand, being a large taxpayer, will claim ITC and file GST returns every month. The recipient will want to ensure that the MSME supplier declares the invoice details on the GST portal for such supply on a timely basis. Thereby, he can avail of the ITC only after the MSME uploads the invoices.

As a result, the recipient may choose to hold back payment of either the tax portion of the invoice or the entire invoice itself to such MSME supplier, until he declares the same on the portal. However, the MSMED Act does not allow the recipient to hold back the payment beyond 45 days.

It discourages the large taxpayers from dealing with the MSMEs until they change the filing frequency to monthly or upload invoices every month since it might create working capital issues for an MSME due to a delay or potential non-availability of ITC.

MSMEs may face additional compliance costs to maintain a system for uploading invoices regularly every month rather than every quarter. It obligates the MSME to opt for a monthly return filing system, thus defeating the objective of the new return system to simplify the return filing process.

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* Recent changes in the MSME scheme

The government of India announced the enactment of a strict rule requiring payments to MSMEs to be settled within 45 days. Tax penalties on the due amount shall be levied if companies fail to follow the said rule. Section 43B (h) in the Income Tax Act introduced by the Finance Act 2023, mandates timely payments to MSMEs to sustain uninterrupted cash flow and strengthen economic sustainability.

The government to handle payment delays, has executed efforts like the Trade Receivables Discounting System (TReDS), easing prompt receivables for MSMEs by enabling the discounting of their invoices. The TReDS platform acts as a critical process for MSMEs to access timely funds, assuring their constant growth and viability in the evolving market trend.

Clause (h) of Section 43B of the Income Tax Act, which will come into effect on April 1, 2024, with 2024-25 as the assessment year (that is financial year 2023-24), aims to address the issue of delayed payments by disallowing expenses to buyers on invoices from MSEs unless paid within 45 days (where agreement exists) and within 15 days if there is no agreement.

* Conclusion

MSMEs are the backbone of the Indian economy, contributing approximately 30% of the country’s GDP (Gross Domestic Product), 45% of manufacturing output and employing 11 Cr of India’s population. The Government of India has been ensuring that all the benefit of these MSME schemes reaches to the MSMEs in time. The govt focuses on ease of doing business for MSMEs.

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