SSI in its new avatar – MSME

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With the emergence of The Micro, Small and Medium Enterprises Development Act in June 2006, things are set to change for Micro, Small and Medium Enterprises (MSMEs). It helps improves cashflows for MSMEs by providing for a penal interest for delayed payments by buyers.

 

Historically, SSIs or Small Scale Industries related concessions and regulations have been dealt with under multiple laws with each provision having varied degree of success. Though there have been concessions in some of the Indirect Tax Acts, the achievements of SSI and their contribution to the economy have been reduced to Statistics for the Budgets and Economic Surveys.

 

With the emergence of The Micro, Small and Medium Enterprises Development Act in June 2006, things are set to change for Micro, Small and Medium Enterprises (MSMEs). Perhaps the most important provision in this Act and probably the first of its kind relates to help improve cashflows for MSMEs by providing for a penal interest for delayed payments by buyers.

 

Features

 

* Classifies Enterprises (instead of Industries) which gives due recognition to the Service Sector

 

* Simplified Registration process with the District Industries Center. Registration is optional in most cases except for enterprises already registered as SSI Units.

 

* Statutory National Board for MSMEs and Advisory Board Setup to assist implementation of the Act

 

Classification of MSMEs under the Act

 

Classification         Manufacturing (Investment              Service (Investments                                       in Plant & Machinery)                               in Equipments)                       

Micro                                     Rs.25 Lakhs                                                   Rs. 10 Lakhs             

 

Small                                          Rs.500 Lakhs                                                     Rs. 200 Lakhs             

 

Medium                                      Rs.1000 Lakhs                                                 Rs. 500 Lakhs

 

Concessions & benefits to MSMEs under the Act

 

* Smoother and Competitive Credit flow to MSMEs. RBI through various measures has instructed banks to allow concessional credit to MSMEs including dispensation of collateral for loans upto certain limits, Single window clearance for loans to MSMEs and specialized branches for MSMEs.

 

* Preference policies for Central and State Government contracts.

 

* The Act provides that buyers from MSMEs should pay before the date agreed upon between the Buyer and the MSME or 45 days whichever is earlier. Where there is a delay in payment the act provides for payment of interest at three times the RBI rate, compounded on a monthly basis. The 45 days is said to begin from the date of acceptance or deemed acceptance of the bill by the buyer. It has also been made mandatory for all companies to disclose the amounts payable to MSMEs with the interest due. Another interesting feature is that the interest so provided shall not be allowed as a deduction under the Income Tax Act.

 

* State Governments are to constitute a Facilitation Council to facilitate the collection provision and to act as a dispute resolution mechanism.

 

It still needs to be seen if the implementation matches the benefits projected in the Act, but atleast now we have an exclusive Act and more than anything else this might induce buyers to pay up on time, every time!

 

Action has started with many companies requesting information from their Vendors to make adequate disclosures in their books. So, if you fall into the Category of MSME, as a measure to improve your cashflows, go ahead and register now.

 

Raghunandan is the Co-founder and Director of Bizprout Corporate Solutions Private Limited and a Chartered accountant. Bizprout provides solutions in the Accounting and Payroll Space.

 

Issue BG87 Jun 08

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