Understanding the revised MSME classification and mandatory MSME Form 1 filing in 2025

India’s MSME sector continues to be the backbone of economic activity and employment generation. Recognising its critical role, the government has introduced key regulatory updates in 2025 aimed at improving transparency, promoting timely payments, and enabling broader access to finance. Two major developments now shape the compliance and operational environment for MSMEs and their corporate partners—the revised MSME classification and the mandatory filing of MSME Form 1.

A new era of classification: Broader coverage for Growing Enterprises

Effective April 1, 2025, the Ministry of MSME has revised the investment and turnover thresholds used to classify Micro, Small, and Medium Enterprises. This change is designed to better reflect the realities of modern businesses, whose scale and operations have evolved significantly over the past few years.

The updated thresholds are as follows:

The expanded classification ensures that growing enterprises can continue to benefit from MSME schemes, access to credit, and platforms like M1xchange, even as their scale increases. It also enables more businesses to formalize and integrate into the financial ecosystem.

MSME Form 1: Enforcing accountability in payments

Alongside the updated classification, the Ministry of Corporate Affairs has made MSME Form 1 filing mandatory for companies that delay payments to MSMEs. This regulation is a critical step towards enforcing accountability and ensuring liquidity within the MSME supply chain.

Companies are now required to file MSME Form 1 if they:

• Owe payments to MSME suppliers that have been outstanding for over 45 days from the date of acceptance or deemed acceptance.
• Are dealing with suppliers registered under the MSMED Act, holding valid Udyam Registration.

The filing is biannual:

• For the period April to September – filing due by 31 October
• For the period October to March – filing due by 30 April

Non-compliance with this requirement may result in penalties under Section 405 of the Companies Act, with fines of up to ₹3 lakh.

The implication for businesses

These updates collectively push for a more structured and supportive MSME environment. The broader classification allows more businesses to register as MSMEs and access formal finance, while the Form 1 mandate ensures their cash flows are protected through timely payments.

At M1xchange, we support this vision by offering an RBI-approved digital platform where MSMEs can convert receivables into working capital via invoice discounting. Our TReDS-based model connects MSMEs with multiple financiers, fostering liquidity and strengthening buyer-supplier relationships. For corporates, it also ensures better compliance with payment norms.

Looking ahead

The 2025 reforms are more than regulatory changes—they represent a decisive step towards a more responsible and resilient MSME sector. With M1xchange, both MSMEs and corporates can navigate this transition confidently, ensuring compliance while enabling financial agility and sustainable growth.