MSMED Bill promises faster payments, but TReDS hurdles and GST ambiguity may leave smaller firms behind

Last week, Parliament passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, nearly 20 years after the enactment of the MSMED Act.

The Bill seeks to strengthen the legal framework governing MSMEs, improve ease of doing business, provide institutional mechanisms for sectoral development and address delayed payments faced by micro and small enterprises among many other things.

While experts have broadly welcomed the Bill, they caution that its effective implementation will decide whether the reform delivers meaningful benefits to the country’s smaller businesses.


The MSME sector contributes 31.1% to the country’s gross domestic product (GDP), 35.4% to manufacturing output, and 48.58% to India’s total exports, according to the Economic Survey 2025-26. India has more than 91.6 million registered MSMEs as of August 2026, employing more than 400 million people. These numbers highlight the importance of MSMEs for the country’s economy and its growth.

Will TReDS reach the smallest MSMEs?

Trade Receivables Discounting System (TReDS) allows MSMEs and start-ups to submit invoices approved by buyers. Banks and non-banking financial companies (NBFCs) convert those invoices into cash, facilitating quicker payments and liquidity for suppliers. It has so far unlocked more than Rs 7 lakh crore in liquidity.

TReDS has emerged as a key part of the amendments. The Bill now mandates Central Public Sector Enterprises (CPSEs) to route MSME payments through it. Stakeholders say this could make payments more predictable, speed up working capital and boost resilience. But success will hinge on wider TReDS adoption, stronger MSE Facilitation Councils, and a clear framework. Many also question whether it can reach the smallest, less formal enterprises.

Sundeep Mohindru, Founder and Promoter, M1xchange, says the digital processes have made onboarding considerably easier for smaller businesses with GST-compliant records and the required documentation. But the bigger challenge, he says, is awareness and bringing more enterprises into the formal financial ecosystem.

Pushkar Mukewar, Founder and CEO, Drip Capital, however, cautions that formalisation alone may not remove all access barriers.

“TReDs can significantly enhance liquidity, especially as they become more common. However, it is necessary to understand the limitations of TReDs. Not all MSMEs will have the necessary documentation and financial history and connections with buyers. Lower-rated companies and small-scale MSMEs can still be kept out of this ecosystem,” Mukewar says.

Therefore, TReDS should be treated as one component of a broader financing architecture, alongside trade finance and digital platforms capable of underwriting businesses that fall outside the TReDS ecosystem, he says.

Suchintan Chatterjee, Partner, Deloitte India, says the immediate benefits of TReDS are likely to be felt more by registered MSMEs than ultra-small sellers, as documentation and adoption remain key challenges. “We expect TReDS adoption by these players to go up with these reforms. This is being driven by two immediate enablers—the simplified onboarding process for MSME sellers that the RBI has now enabled and the close integration of insurers and credit guarantee fund trusts with the TReDS platform that makes the proposition more attractive to both buyers and sellers,” says Chatterjee.

‘More targeted measures required’

For Charan Singh, Flounder & CEO, EGROW Foundation, delayed payments are just one of many deeper MSME challenges. He says policymakers lack basic data on the sector. “We don’t even have a clear count of MSMEs or the jobs they create. Estimates vary and there’s been no comprehensive census,” Singh says, emphasising that many MSMEs remain unregistered.

While he welcomes parts of the Bill, he questions if it addresses root issues. “The steps are good, but are we only scratching the surface without a thorough study of what actually ails MSMEs?” He expresses his doubt about whether TReDS would work equally well for the smallest businesses.

“TReDS is more likely to benefit larger MSMEs that can afford legal experts and chartered accountants. Many MSMEs operate on a shoestring. TReDS itself is not a bad mechanism, and invoice discounting can certainly help, but we need to examine whether there are stronger and simpler mechanisms that can work for smaller enterprises,” Singh says.

Infrastructure remains a bigger constraint

Singh says delayed payments and access to credit should not overshadow the basic infrastructure constraints faced by MSMEs operating in industrial clusters. “Have we ever really visited the places where MSMEs operate? Most MSME clusters lack basic infrastructure. There are inadequate roads, waste-disposal systems, sanitation, sewerage, and public utilities. Facilities such as ESI are often not available. If there are hundreds of MSMEs operating in one cluster, there needs to be an ecosystem that supports them.”

He says productivity would remain constrained without such an ecosystem. “Unless there is an ecosystem that brings excitement and confidence to the MSME entrepreneur, how do we expect productivity to increase?”

Power disruptions and the cost of compliance are additional burdens. “Each MSME is expected to have its own generator because power supply is highly disruptive. These are additional costs that small enterprises have to bear,” Singh says.

He also links infrastructure shortcomings to the sector’s workforce challenge, arguing that workers increasingly have access to organised workplaces offering better conditions.

“Why would a person choose to work in an MSME in a hot and difficult environment when there is an alternative of working in a shopping mall with good roads, sanitation, waste management, and a modern work environment? MSMEs are, therefore, running short of a workforce. The question is, who has really studied these problems of MSMEs?” Singh says.

GST clarity needed on TReDS transactions

Goods and services tax (GST) treatment of invoices discounted through TReDS is another area where experts want greater clarity.

Mohindru says GST liability and financing of an invoice are separate matters. “GST liability is determined by the underlying transaction and the applicable tax provisions, while TReDS facilitates financing against the trade receivable. Where GST is included in the invoice, the receivable financed through TReDS is generally the total invoice value, including the GST component.”

“For example, if an invoice is Rs 1,000 plus Rs 180 GST, the receivable is Rs 1,180. TReDS provides liquidity against this receivable; it does not determine the GST liability. Therefore, the focus should be on ensuring that GST treatment remains clear and does not create unnecessary friction in invoice financing. This distinction will become increasingly important as digital receivables financing scales,” Mohindru explains.

Shrenik Shah, Partner, Deloitte India, says greater clarity would help prevent disputes.

“While the underlying transactions involving the supply of goods or services would be liable to GST independently, clarity on applicability of GST to various aspects of the invoice discounting arrangement through TReDS would help MSMEs gain certainty and avoid potential GST disputes,” Shah says.

He suggests that the government issue a circular or FAQs explaining the applicability of GST on discounting charges, platform fees and corresponding input tax credit availability.

Nitin Vijaivergia, Partner, Price Waterhouse & Co. LLP, says TReDS discounting essentially finances the receivable and does not reduce the taxable value of the original supply.

“The TReDS platform plays an important role in improving MSME liquidity by enabling early realisation of trade receivables. TReDS discounting is essentially financing the receivable; it does not reduce the taxable value of the original supply in the hands of the MSME,” Vijaivergia says.

He adds that separately charged processing, platform, or documentation fees could attract GST, while suggesting that the government clarify whether payment by a buyer to a TReDS financier constitutes payment to the MSME for the 180-day input tax credit condition. Such clarity, he says, will help prevent unintended GST compliance issues as TReDS adoption expands.

Singh, meanwhile, says the taxation framework remains difficult for smaller entrepreneurs to navigate.

Once an invoice is discounted through TReDS, how does the GST matching take place? What is the GST obligation when a payment is made through adjudication or when the invoice has been discounted? “These are not clear even to many stakeholders,” he says.

He argues that the government should accompany major amendments with simple guidance.

“The government should clearly explain how the new provisions will work in practice and what MSMEs are expected to do. That clarity is essential,” Singh says.

Enforcement could determine the outcome

The amendments introduce time-bound mediation and arbitration, strengthen enforcement of awards, provide for recovery of dues as arrears of land revenue and introduce an Online Dispute Resolution mechanism.

Mukewar says implementation needs to be more uniform across states.

“The objective should be a national standard for enforcement, even if implementation remains state-led. Digital case tracking, defined resolution timelines, stronger MSEFC capacity, and transparent monitoring can reduce differences across states. MSMEs should not face a different level of protection simply because their buyer or business is in another state,” he adds.

Mohindru similarly stresses digital integration, institutional capacity, and consistent monitoring, saying banking channels, GST-linked records, and digital platforms could create reliable transaction trails and improve enforcement.

Credit is only one piece of the puzzle

The Bill retains the 45-day payment rule, which industry views as a key safeguard. But experts say enforcement is the real test, with over Rs 8 lakh crore stuck in dues and over 2.5 lakh cases on the Samadhaan portal. They also argue financing challenges run deeper. Mohindru says deep-tier financing can ease liquidity for smaller suppliers, while credit guarantees and insurance can nudge lenders to fund micro units.

Mukewar emphasises that policy should extend beyond credit. “Trade financing, procurement, and logistics will be vital for MSMEs in global supply chains. Cheaper loans need to be backed by platforms for procurement, inventory, and exports,” he says.

The real test: Reaching the smallest enterprise

The MSMED Amendment Bill could ease delayed payments and disputes via mandatory TReDS for CPSEs, online dispute resolution, and stronger recovery.

Experts caution it may create a two-speed MSME sector. Larger, formal firms could gain faster finance and recovery, while micro units with weak documentation and compliance may struggle to access the new system.

Singh sums up the broader concern by describing the sector as a “black box.”

“The MSMSE sector is a black box that nobody really understands. We need a miracle box for Gen Z, and MSMEs are that miracle box. How to convert the black box into a miracle box is the journey we need to undertake,” he says.