With the Income Tax Act, 2025 now in force, MSMEs must align their tax planning, bookkeeping, and compliance with the new provisions. This article outlines the key financial planning areas for Micro, Small, and Medium Enterprises for Tax Year 2026-27.
Introduction
Micro, Small, and Medium Enterprises (MSMEs) form the backbone of India’s economy. With the Income Tax Act, 2025 now in effect from April 1, 2026, MSME promoters and owners must understand the new provisions that govern their tax compliance for Tax Year 2026-27.
MSME Classification (Revised)
| Category | Investment in Plant & Machinery | Annual Turnover |
|---|---|---|
| Micro | Up to ₹1 crore | Up to ₹5 crore |
| Small | Up to ₹10 crore | Up to ₹50 crore |
| Medium | Up to ₹50 crore | Up to ₹250 crore |
Udyam Registration on the Udyam portal (udyamregistration.gov.in) is mandatory to access MSME benefits and is free of cost.
Presumptive Taxation under the Income Tax Act, 2025
For Eligible Businesses (Equivalent to old Section 44AD):
- Applicable for resident individuals, HUFs, and partnership firms (not LLPs) with gross receipts up to ₹3 crore.
- Deemed income at 8% of gross receipts (or 6% for digitally received amounts) is treated as the final taxable income.
- No separate books of account are required to be maintained.
- Advance tax must be paid in one instalment by 15 March 2027 (for Tax Year 2026-27).
For Eligible Professionals (Equivalent to old Section 44ADA):
- Available to specified professionals with gross receipts up to ₹75 lakh.
- Deemed income at 50% of gross receipts.
Tax Audit under the Income Tax Act, 2025
MSMEs with turnover exceeding the prescribed threshold (₹1 crore for business, ₹50 lakh for professionals) are required to get their accounts audited by a Chartered Accountant and submit the audit report before 30 September 2027 (for Tax Year 2026-27).
TDS Compliance for MSMEs under Section 393
MSMEs making specified payments (rent, contractor payments, commission, professional fees) are required to deduct TDS under Section 393 of the Income Tax Act, 2025. MSME owners must:
- Obtain Tax Deduction Account Number (TAN).
- Update accounting software to reference Section 393 table entries.
- Deposit TDS by the 7th of the following month.
- File quarterly TDS returns under Section 393 for Tax Year 2026-27.
Working Capital Management
- Maintain a working capital cycle analysis: Debtors’ days + Inventory days – Creditors’ days.
- Use the MSME Samadhaan Portal to recover delayed payments from buyers (mandatory payment within 45 days under the MSMED Act, 2006).
- Explore TReDS (Trade Receivables Discounting System) platforms for discounting receivables from large buyers.
Government Schemes for MSMEs
- CGTMSE: Collateral-free credit guarantee up to ₹5 crore for MSME loans.
- MUDRA Loans: For micro-enterprises requiring working capital support.
- PM Vishwakarma Yojana: Financial and skill support for traditional artisans.
- ECLGS: Extended credit for eligible MSMEs — check with your bank for current eligibility.
Key Financial Planning Checklist for Tax Year 2026-27
- Verify and update Udyam Registration if turnover/investment thresholds have changed.
- Determine applicability of presumptive taxation under the Income Tax Act, 2025.
- Maintain proper books of account if turnover exceeds the audit threshold.
- Update ERP/billing software to reference Section 393 for TDS obligations from April 2026.
- Pay advance tax in four instalments starting June 2026.
- File GSTR-1, GSTR-3B, and reconcile GSTR-2B monthly for GST compliance.
- Ensure MSME-1 (payment to MSMEs) is filed by April 30 and October 31.
- Obtain a business insurance review — fire, marine, professional indemnity as applicable.
The information provided herein is for general guidance and informational purposes only. For advice tailored to your specific situation, please consult a qualified Chartered Accountant.
The information provided herein is for general guidance and informational purposes only. For advice tailored to your specific situation, please consult a qualified Chartered Accountant.