The Centre has proposed major amendments to the Micro, Small, and Medium Enterprises (MSME) Development Act, 2006, aimed at improving cash flows, reducing payment delays and simplifying compliance for small businesses.
The MSME Development (Amendment) Bill, 2026, introduced in Parliament, proposes mandatory digital invoicing for payments by Central Public Sector Undertakings (PSUs), a national digital registration platform, faster dispute resolution and decriminalisation of certain offences under the existing law.
Under the proposed legislation, invoices raised by MSMEs on Central PSUs will have to be routed through the Trade Receivables Discounting System (TReDS) platform. State governments may introduce similar requirements for their public sector undertakings.
The move is aimed at helping MSMEs access working capital faster and reducing delays in receiving payments from government-linked entities.
The Bill also proposes a free national digital registration platform for MSMEs to simplify registration and improve access to government schemes.
To improve dispute resolution, the proposed amendments require states to establish additional MSME Facilitation Councils. The Bill also proposes that buyers challenging an award granted in favour of an MSME may have to release at least 50% of the awarded amount if the legal challenge remains pending for more than six months.
Courts would be allowed to direct payments from the deposited amount during appeal proceedings, with the aim of easing financial pressure on small businesses.
The proposed law also seeks to replace criminal fines for certain offences with graded monetary penalties and warnings. It introduces an appellate mechanism allowing businesses to challenge penalties.
The composition of MSME Facilitation Councils will also be revised, with councils consisting of three to five members and the inclusion of a legal expert becoming mandatory.
The amendments are intended to strengthen access to finance, improve payment mechanisms and reduce regulatory challenges while maintaining safeguards for businesses.