MSMEs Under the New Regulatory LandscapeMSMEs Under the New Regulatory Landscape

At the MSME Day celebrations held on 27 June 2026, CA Anand Lunkar spoke on an increasingly important subject: how MSMEs can navigate the new regulatory landscape while preparing for growth. His session brought together tax, finance, labour compliance, capital raising and wealth protection — areas closely connected in the life of an enterprise.

For MSMEs, compliance can no longer be treated as a year-end exercise. It must become part of business strategy. Clean books, timely filings, well-drafted agreements and disciplined cash-flow management improve credibility with banks and investors, protect the enterprise during disputes and create a stronger platform for scale.

More room for MSMEs to grow

The revised MSME classification, effective from 1 April 2025, gives enterprises a wider runway for growth. A micro enterprise can now have investment in plant and machinery or equipment of up to ₹2.5 crore and turnover of up to ₹10 crore. For a small enterprise, the limits are ₹25 crore and ₹100 crore respectively; for a medium enterprise, they are ₹125 crore and ₹500 crore.

Both investment and turnover criteria matter. If either limit is crossed, the enterprise moves to the next category. Export turnover is excluded while computing the turnover limit. This is positive for MSMEs exploring global markets, as export growth does not by itself push them into a higher category.

Entrepreneurs should review their Udyam classification and ensure that their income-tax and GST records are accurate. A business that earlier moved out of the MSME bracket may now qualify again for linked benefits, credit support and delayed-payment remedies.

The new income-tax framework

The Income-tax Act, 2025 came into force on 1 April 2026. It largely simplifies and reorganises the earlier framework, reduces the number of sections and introduces the single concept of a “Tax Year”. For MSMEs, the key is understanding how the provisions affect cash flow and business decisions.

One important provision concerns payments to registered micro and small enterprises. Without a written agreement, payment must generally be made within 15 days of acceptance of goods or services. With a written agreement, the period cannot exceed 45 days. Delay can postpone the buyer’s tax deduction until the year of actual payment and may attract compound interest under the MSMED Act. Businesses must identify their micro and small vendors, record payment terms and monitor due dates.

Eligible startups should examine the available tax holiday. A qualifying company or LLP can claim a 100 per cent deduction of eligible profits for three consecutive tax years out of its first ten years, subject to prescribed conditions and approvals. Those three years should be planned carefully so that the benefit is used during stronger profit years.

For smaller businesses and professionals, presumptive taxation offers a simpler compliance route, subject to eligibility, turnover limits and cash-receipt conditions. The correct structure — proprietorship, partnership, LLP or private limited company — should be chosen not only for today’s tax position, but also for future funding, governance and growth.

GST and labour: two operational resets

The GST reforms effective from 22 September 2025 simplified the main rate structure to 5 per cent and 18 per cent, with a special 40 per cent rate for specified luxury and sin goods. For many MSMEs, this reduced classification disputes and lowered rates on several products. Yet a rate change also affects pricing, margins, quotations, contracts, inventory and input-tax-credit reconciliation. Businesses must review HSN classifications and maintain a complete digital audit trail.

The four Labour Codes, effective from 21 November 2025, consolidated 29 Central labour laws into a unified framework covering wages, industrial relations, social security and occupational safety. For MSMEs, the new definition of wages can influence provident fund, gratuity and other benefits. Appointment letters, payroll structures, working hours, overtime and social-security coverage should be reviewed with professional guidance as detailed rules continue to settle.

From compliance to capital

A strong compliance record supports access to finance. Options extend beyond conventional bank borrowing. CGTMSE can support eligible collateral-free credit facilities of up to ₹10 crore; TReDS can unlock cash tied up in receivables; and SIDBI, priority-sector lending, alternative investment funds and equity can support different stages of growth.

The instrument must match the stage and needs of the enterprise. Debt may suit predictable cash flows. Early-stage investors may prefer compulsorily convertible preference shares or other convertible instruments, while mature businesses may raise equity for expansion. Capital should be chosen after examining cost, control, repayment obligations, dilution and the runway required.

Delayed receivables remain a major threat to MSME survival. Udyam-registered micro and small enterprises can approach MSME Samadhaan and the Micro and Small Enterprises Facilitation Council for recovery. The process may take time, but the legal protection makes it an important tool. TReDS can help prevent receivables from becoming a crisis by enabling earlier invoice discounting.

Protecting the enterprise and its legacy

As a business grows, founders must also look beyond immediate profits. Intellectual property, family assets and operating risks should be appropriately ring-fenced. Founder and shareholder agreements must address ownership, decision-making, entry and exit, transfer restrictions, valuation and dispute resolution. Weak documentation can destroy value when an investor enters or a disagreement arises.

Succession planning is equally important. It is not limited to writing a Will; it includes ownership, management continuity, family expectations, taxation and transfer of control. Planning early allows wealth to move to the next generation with greater clarity and fewer disputes.

The central message from the session was clear: compliance is not the opposite of growth; it is its foundation. An MSME that maintains clean records, pays vendors on time, formalises employment, chooses the right capital and protects its assets is building credibility, resilience and long-term enterprise value.

MSMEs are the makers of India’s future, the strength behind our economy, the multipliers of wealth and employment, and the engines of intergenerational prosperity. The journey must move from compliance to capital — and from capital to lasting legacy.

Regulatory provisions may change; businesses should obtain advice suited to their specific circumstances before acting.