Question 1

Which RBI directions govern TReDS platforms and who can participate?

Accepted Answer

TReDS platforms operate under the RBI Directions on Trade Receivables Discounting System (TReDS) 2014, last revised in 2021. Eligible participants are MSME sellers, buyers (corporates, PSUs, government entities), and SEBI-registered financiers (banks, NBFC-Factors registered under the Factoring Regulation Act 2011). Foreign banks with an Indian branch licence are also eligible financiers.

Question 2

Is GST levied on the discount or factoring fee charged on a TReDS transaction?

Accepted Answer

Factoring services by a bank or NBFC-Factor are exempt from GST under Entry 27 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017. However, platform fees charged by the TReDS operator (e.g., RXIL, M1xchange, Invoicemart) attract GST at 18% under SAC 997159 as a financial intermediation service.

Question 3

How must a buyer deduct TDS on invoices financed through TReDS?

Accepted Answer

TDS under Section 194 of ITA 1961 (AY 2026-27) applies on the gross invoice amount payable to the MSME seller at the time of credit or payment, whichever is earlier. From TY 2026-27 onwards the equivalent provision is Section 393 of ITA 2025. The deduction must be reflected in Form 26Q and Form 16A issued to the seller. The shift of payment obligation to the financier does not extinguish the buyer's TDS duty on the original trade payable.

Question 4

Do MSME sellers need to disclose TReDS financing in their financial statements?

Accepted Answer

Yes. Under Schedule III to the Companies Act 2013 (as amended by MCA notification dated 24 March 2021), companies must disclose in their notes whether outstanding dues to MSME creditors have been financed through TReDS and whether the buyer accepted the factored bill within the 45-day payment window prescribed under Section 15 of the MSMED Act 2006.

Question 5

What is the Section 43B(h) income tax consequence for a buyer who delays payment beyond 45 days?

Accepted Answer

Under Section 43B(h) of ITA 1961 (applicable for AY 2026-27), a buyer cannot claim an income tax deduction on amounts payable to an MSME unless actual payment is made within the time limit under Section 15 of the MSMED Act 2006 (15 days where no written agreement exists; up to 45 days where a written agreement exists). Default also triggers compound interest at three times the RBI bank rate under Section 16 of the MSMED Act 2006 and exposes the buyer to MSME Samadhaan proceedings.

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