Benefits of MSME (Udyam) registration, and who does not get them

Udyam (MSME) registration has these main benefits. Banks treat your loan as a priority sector loan. Micro and small businesses get loans up to ₹10 lakh without collateral. Buyers must pay micro and small suppliers within 45 days or pay interest. Government buyers give tender benefits. Trademark filing costs less. Registration itself is free.

The benefits at a glance

1. Easier bank loans

Banks use the category on your Udyam certificate to decide whether your loan is an MSME loan under priority sector lending (RBI MSME FAQ, Q1).

For micro and small enterprises, banks must not ask for collateral on loans up to ₹10 lakh (RBI MSME FAQ, Q11).

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) can cover collateral-free credit up to ₹10 crore. The lender pays a guarantee fee (RBI MSME FAQ, Q12).

2. Protection from late payment

If you are a micro or small supplier with a Udyam registration, the MSMED Act protects you:

• The buyer must pay on the date agreed in writing. The agreed period cannot be more than 45 days from acceptance of the goods or services (section 15).
• If there is no written agreement, the buyer must pay within 15 days of acceptance (section 15).
• If the buyer pays late, the buyer owes compound interest with monthly rests at three times the bank rate notified by RBI (section 16).
• Either side can take the dispute to the Micro and Small Enterprises Facilitation Council (section 18).
• A buyer whose accounts are audited must show unpaid MSME dues in its annual accounts (section 22).
• The buyer cannot claim this interest as a deduction for income tax (section 23).

Buyers that pay late also lose the tax deduction until they pay (section 43B(h) of the Income-tax Act, 1961; section 37(2)(g) of the Income-tax Act, 2025 from tax year 2026-27). Full guide: MSME 45 days payment rule.

Who is not covered. Section 2(n) defines a "supplier" as a micro or small enterprise that has filed its memorandum. Medium enterprises are not covered. Our reading is that traders are not covered either (RBI circular, 7 July 2021: traders are MSMEs only for priority sector lending).

As of 9 October 2026: the MSMED (Amendment) Bill, 2026, passed by Parliament in August 2026, adds faster mediation and arbitration steps and settlement through TReDS for central public sector buyers. These start only on dates the government notifies. We found no change to the 45-day limit in the PRS summary of the Bill.

3. Government tenders

Under the Public Procurement Policy for Micro and Small Enterprises:

• Central ministries, departments and central public sector enterprises must buy at least 25% of their yearly purchases from micro and small enterprises. Within that, 4% is for MSEs owned by SC/ST entrepreneurs and 3% for MSEs owned by women.
• MSEs get tender sets free of cost and are exempt from earnest money deposit (EMD).
• An MSE that quotes within L1 + 15% can also be allowed to supply when the lowest bid is from a non-MSE.
• There is no exemption from security deposit or performance bank guarantee.
• The benefit applies only for the item group (NIC code) you registered on Udyam.
• Traders, distributors, sole agents and works contracts are excluded.

Source: DC-MSME, FAQs on the Public Procurement Policy (Q1, Q2, Q8, Q11, Q18, Q20, Q29, Q49).

For an EMD exemption, show your Udyam certificate with the bid, and check that the item you bid for is under an NIC code on your registration (DC-MSME FAQ, Q29).

4. Lower trademark filing fee

The Trade Marks Registry charges a lower fee to an individual, a startup or a small enterprise. For e-filing a new trademark application (Form TM-A), the fee is ₹4,500 per class instead of ₹9,000 (₹5,000 instead of ₹10,000 on paper). Source: IP India, Forms and official fees. The Registry asks a small enterprise for its Udyam number as proof.

Need a trademark? See our trademark registration service.

5. Tax benefits

There is no separate income tax exemption for being an MSME that we could confirm. The tax link is the buyer-side rule in section 43B(h) (section 2 above): it pushes your buyers to pay on time.

Disadvantages of MSME registration

This section is our reading of the rules above.

• No benefit for some businesses. Medium enterprises get no late-payment protection. Traders get only the bank lending benefit.
• Buyers may push back. Because late payment hurts the buyer's tax deduction under section 43B(h), some buyers may ask suppliers whether they are registered before placing orders.
• You must give true details. Registration is on self-declaration. False details, or hiding facts, can be penalised under section 27 of the MSMED Act (Udyam portal).
• Benefits are not automatic. You claim each one: you show the certificate to the bank, attach it to the tender, or file the claim before the Facilitation Council.

How to claim MSME benefits

To register first, read our Udyam registration guide.

Not registered yet? See our MSME registration service.

Frequently asked questions