MSME Development Amendment Bill 2026 Passed by Parliament
The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 was passed by Parliament in August 2026 to update the existing MSMED Act, 2006. The amendments aim to reduce payment-related constraints, make dispute resolution more time-bound, and simplify compliance to facilitate growth, development, and competitiveness of MSMEs while promoting Ease of Doing Business.
Economic Significance of MSME Sector
According to the Economic Survey 2025-26, MSMEs account for 31.1% of GDP, 35.4% of manufacturing output, and 48.58% of exports. As of August 2026, 9.16 crore MSMEs are registered on the Udyam platform, employing more than 40 crore people. The sector has expanded in scale, diversity, and digital reach, operating across rural, semi-urban, and urban areas while participating more actively in formal supply chains.
Key Regulatory Changes
MSME Classification: The Bill changes classification criteria from investment thresholds to a dual basis of investment in plant and machinery or equipment AND turnover.
MSME Registration: Filing of memorandum becomes free and voluntary for all MSMEs. The Central Government will notify a national platform, and state governments may notify state digital platforms. State scheme benefits may be extended to MSMEs registered on both national and state-level platforms.
Payments through TReDS: All Central Public Sector Enterprises (CPSEs) are required to settle invoices for goods and services procured from MSMEs through the Trade Receivables Discounting System (TReDS) platform. States may mandate their Public Sector Enterprises (PSEs), authorities, or entities to use TReDS for invoice settlement.
MSE Facilitation Councils Framework: State Governments can establish multiple MSE Facilitation Councils (MSEFCs) to enable faster resolution of payment-related disputes and are empowered to provide adequate infrastructure, digital systems, and trained manpower.
Mediation and Arbitration: Central Government may establish an online mechanism for conducting online mediation or arbitration with specific timelines: mediation must be completed within 90 days from the first appearance date; if mediation is terminated, matter must be referred for arbitration within 30 days; arbitral award must be made within 90 days from completion of pleadings.
Dispute Resolution: Courts may direct payment of a reasonable portion of deposited amounts to MSME suppliers when applications to set aside orders are pending. For applications pending more than six months, courts shall direct payment of at least 50% of the awarded amount to MSE suppliers.
Recovery of Dues: Mediated settlement agreements or arbitral awards can be recovered as 'arrears of land revenue' through District Collector, Deputy Commissioner, or other notified authority with jurisdiction over the buyer's assets.
Decriminalisation of Offences: Non-filing of registration or non-supply of information violations have been decriminalized. Furnishing incorrect information now attracts a warning for first instance followed by penalties for subsequent instances. Non-disclosure of unpaid dues by buyers attracts a warning for first instance, penalty for second, and fine for third and subsequent instances.
Digital and Institutional Support
The reforms are supported by digital platforms including the Udyam Registration Portal which provides official recognition through free, paperless, self-declaration-based online process, and the Udyam Assist Platform which formally recognizes informal micro enterprises without GST registration or Income Tax coverage.
TReDS platform, operating under RBI guidelines, saw invoice discounting value rise from ₹40,000 crore in 2022-23 to ₹3.47 lakh crore in 2025-26. The Online Dispute Resolution (ODR) Portal launched in June 2025 offers low-cost, end-to-end digital mechanism for resolving delayed payment disputes. 161 MSEFCs have been established across States and Union Territories to adjudicate payment delay disputes.