MSME Amendment Bill 2026: What Businesses Should Know
- The MSMED Amendment Bill 2026 proposes faster dispute resolution, stronger payment enforcement and MSME classification changes.
- It was introduced in the Rajya Sabha on 28 July 2026, passed by the Rajya Sabha on 3 August 2026 and passed by the Lok Sabha on 7 August 2026.
- As of 11 August 2026, the Bill has cleared both Houses of Parliament but has not yet become law. Presidential assent and commencement are still pending.
- The existing maximum 45-day agreed payment period for eligible micro and small suppliers remains in force.
- Specified costs like R&D and pollution control will be excluded from MSME investment calculations.
- The Bill proposes 90-day dispute timelines, stronger recovery, MSME classification changes and MSEFC reforms.
Delayed payments can affect a small supplier’s ability to pay workers, buy materials and accept new orders. According to the Ministry of MSME, the MSME Samadhaan portal had received 2,56,892 applications involving claims of ₹55,244.29 crore as of June 2026. MSE Facilitation Councils had disposed of 58,148 cases.
This article is for micro and small enterprise owners, finance teams, and businesses that purchase from MSME suppliers. It explains the current law, the proposed changes, and what businesses should do next.
Avoid Delays in MSME Payments
Track vendor classification and upcoming payment deadlines to manage MSME dues on time.
What Is the MSME Amendment Bill 2026?
The formal name is the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026. It proposes changes to the MSMED Act 2006 , which contains the legal framework for the promotion, development and protection of micro, small and medium enterprises .
Its provisions cover enforcement of mediated settlements and arbitral awards, faster mediation and arbitration timelines, changes to MSE Facilitation Councils, MSME classification, graded penalties, digital registration and payment-related measures involving public sector enterprises. Delayed-payment enforcement is its most important business impact.
The current Act already sets payment deadlines, interest consequences and a dispute route. The main weakness has often appeared after a supplier obtains a settlement or award but still faces difficulty recovering the money.
What Is the Current Status of the Bill?
| Legislative Stage | Status |
|---|---|
| Introduced in Rajya Sabha | 28 July 2026 |
| Passed by Rajya Sabha | 3 August 2026 |
| Passed by Lok Sabha | 7 August 2026 |
| Presidential assent | Pending |
| Effective date | Not notified |
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The Bill has now cleared both Houses of Parliament but has not yet become law. Presidential assent and the commencement of its provisions are still pending. Until then, businesses must continue following the existing MSMED Act 2006 provisions. The 2026 Bill's new timelines and other amendments should not be treated as currently enforceable. The effective date will be confirmed through the final assent and commencement notification.
MSMED Act 2006 vs the 2026 Amendment Bill
The existing Act sets the payment deadline, interest consequences and dispute process.
| Area | Existing Position | Proposed Direction |
|---|---|---|
| Payment deadline | Written payment terms cannot exceed 45 days from acceptance or deemed acceptance | No reported change to the existing limit |
| MSME classification | Classification uses investment and turnover | Specified costs excluded from investment calculation |
| Dispute resolution timelines | MSEFCs handle mediation and arbitration | 90-day mediation and award timelines proposed |
| Interest on delayed payment | Compound interest applies at three times the RBI bank rate | No reported replacement of the existing rule |
| MSE Facilitation Councils | Eligible micro and small suppliers may refer disputes to an MSEFC | States may receive greater flexibility to establish and structure MSEFCs |
| Award challenges | Buyers must satisfy the existing legal conditions to challenge an award | 50% of the award may become payable if the challenge exceeds six months. |
| Recovery of determined amounts | Suppliers may experience delays even after obtaining a settlement or award | Stronger recovery mechanisms and debt-recognition provisions are proposed |
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The proposed Bill mainly seeks to strengthen enforcement after a settlement or award has been issued.
Key Changes Proposed in the MSME Bill 2026
90-Day Timelines for Mediation and Arbitration
The Bill introduces fixed timelines for delayed-payment disputes before MSE Facilitation Councils. Mediation must be completed within 90 days from the date fixed for the first appearance. If mediation is unsuccessful, the dispute must be referred to arbitration within 30 days from the date of termination of mediation.
The Bill also requires the arbitral award to be made within 90 days from the date of completion of pleadings. It allows for online mediation and arbitration through electronic means, subject to the prescribed mechanism.
These timelines will apply only after the amendment comes into force. Until then, the existing MSMED Act 2006 process continues to apply.
MSME Classification and Investment Calculation Exclusions
The Bill changes the framework for classifying micro, small and medium enterprises. The Central Government may classify enterprises using investment in plant and machinery or equipment and turnover, with the applicable limits to be specified by notification.
Importantly, the Bill clarifies that the cost of pollution control, research and development, industrial safety devices and other items specified by notification will be excluded when calculating investment in plant and machinery.
This means these specified costs will not be counted against the applicable investment limit. In practice, this can help eligible enterprises avoid losing their MSME classification because of qualifying investments that are excluded from the calculation. The exact classification limits will depend on the notification issued under the amended framework.
Recovery as Arrears of Land Revenue
The Bill proposes that an amount due under a mediated settlement agreement or arbitral award may be recovered as arrears of land revenue . Recovery could be handled by the district collector, deputy commissioner or another notified authority where the buyer’s assets are located.
This route would apply only after the amount has been determined through a settlement or award. An unpaid invoice could not be sent directly to a district authority without completing the required dispute process.
Recognition as an Enforceable Debt
An amount determined under a mediated settlement or arbitral award would be treated as a valid and legally enforceable debt. It may also be recognized under the Insolvency and Bankruptcy Code, 2016.
This recognition would not automatically begin insolvency proceedings. The supplier would still need to meet the relevant conditions, thresholds and procedures under the IBC.
Relief During Long Award Challenges
Under the existing Act, a buyer generally has to deposit 75% of the awarded amount before a court considers an application to set aside the award.
The Bill proposes further protection where such a challenge remains pending for more than six months. In that situation, the court may direct the buyer to pay at least 50% of the awarded amount to the supplier.
This would be a court-directed measure. The payment would not become automatic merely because six months had passed.
Changes to MSE Facilitation Councils
The Bill proposes giving states greater flexibility to determine the composition of MSE Facilitation Councils and establish additional councils. The Bill also introduces defined timelines for mediation and arbitration, which are intended to support faster disposal of delayed-payment disputes.
This could help states manage higher case volumes. However, faster resolution will also depend on timely appointments, administrative support, case management and enforcement.
Graded Penalties and Digital Registration
The Bill also proposes graded penalties for certain contraventions, including a warning for a first violation instead of immediately applying conviction-based fines.
It also provides for a national digital platform for free and voluntary filing of MSME registration details. These measures concern registration and compliance and are separate from the delayed-payment recovery provisions.
TReDS Requirements for CPSE Payments
The Bill also proposes requiring Central Public Sector Enterprises to settle MSME invoices through RBI-authorised Trade Receivables Discounting System platforms. It would also allow states to introduce similar requirements for their public sector enterprises.
For operating CPSEs, however, the requirement is already in force. A separate Ministry of MSME notification dated 30 June 2026 requires them to route the settlement of invoices for goods and services purchased from MSMEs through authorised TReDS platforms. It also introduces disclosure and statutory-audit requirements.
The proposed Bill would therefore strengthen the legal framework around a requirement that already applies to operating CPSEs.
What MSE Suppliers Should Prepare
The proposed enforcement measures would be most useful after a supplier has proved the amount due through mediation or arbitration. A strong claim will still depend on clear records.
Suppliers should also track the date of first appearance and other dispute milestones if a delayed-payment dispute enters the MSEFC process, particularly once the amended timelines come into force. They should retain:
- Current Udyam registration details
- Written payment terms and purchase orders
- Invoices and customer ledgers
- Proof of delivery or service completion
- Acceptance records, credit notes and part-payment details
- Records of MSEFC references, mediation dates and settlement or arbitration proceedings
For example, Sharma Electricals supplies goods worth ₹5 lakh on a written 30-day payment term, but the buyer does not pay after accepting the goods. The existing Act governs the payment deadline, interest, and initial dispute. The proposed amendment would become relevant if Sharma Electricals later obtains a settlement or award but still faces difficulty recovering the amount.
What Buyers Need to Review
Delayed payments can also affect the buyer’s income-tax deduction. Section 37(2)(g) of the Income-tax Act, 2025 provides that an amount payable to a micro or small enterprise beyond the period allowed under Section 15 of the MSMED Act is deductible on actual payment. This is the current counterpart of Section 43B(h) under the earlier Income-tax Act, 1961.
Buyers should also monitor the supplier's MSME classification under the updated framework once the amendment takes effect, including the applicable investment and turnover limits. The delayed-payment protection applies to eligible micro and small suppliers, not automatically to every business described as an MSME.
Retail and wholesale traders registered as MSEs only for priority-sector lending benefits do not fall within Section 15 of the MSMED Act, according to a Ministry of MSME clarification dated 28 June 2024. Buyers should therefore check the supplier’s eligible activity and classification rather than relying only on the presence of a Udyam certificate.
BUSY accounting software can help finance teams review vendor aging, invoice dates, due dates and outstanding balances in one place. This can help buyers identify approaching payment deadlines and help suppliers maintain clearer records of unpaid invoices.
Conclusion
The MSME Amendment Bill 2026 has now passed both Houses of Parliament and seeks to strengthen delayed-payment resolution through 90-day mediation and arbitration timelines, stronger recovery mechanisms and changes to MSME classification.
It also excludes specified costs such as pollution control, research and development and industrial safety devices from investment calculation. As of 11 August 2026, the Bill still awaits Presidential assent and commencement. Until then, suppliers and buyers must continue following the existing MSMED Act 2006 provisions.
