Determine whether a vendor is an MSME : Request the vendor’s Udyam Registration Certificate and verify the registration number on the Udyam Portal. You should also confirm the enterprise’s classification as Micro, Small, or Medium, since different compliance requirements apply to different categories.

Understanding the MSME Classification Results

The MSME classification of a supplier determines the compliance requirements applicable under the MSMED Act and the Income-tax Act. Effective from 1 April 2025, enterprises are classified based on their investment in plant and machinery/equipment and annual turnover as follows:

Export turnover is excluded while determining turnover for MSME classification purposes.

Compliance Impact of MSME Classification

• Micro and Small Enterprises: Payments to these enterprises are subject to the prescribed payment timelines under The Micro, Small, and Medium Enterprises Development Act, 2006, and delayed payments may attract disallowance u/s 43B(h) of the Income-tax Act.
• Medium Enterprises: Although registered as MSMEs, Medium Enterprises are generally outside the scope of Section 43B(h) provisions.
• Trading Businesses: Based on the commonly accepted interpretation of the Ministry’s July 2021 notification, wholesale and retail traders are eligible for MSME registration primarily for priority sector lending benefits and are generally not covered by the delayed payment provisions under the Micro, Small, and Medium Enterprises Development Act, 2006.

Can a Large or Listed Company Qualify as an MSME?

Yes. A company can qualify as an MSME if its investment and turnover remain within the prescribed limits, regardless of  Its size or market presence, whether it is a listed company or whether it belongs to a large corporate group.

Micro, Small, or Medium Enterprise classification is determined solely on the basis of the enterprise’s investment and turnover figures, which are derived from its income tax and GST records.

Do not assume that a well-known brand, listed entity, or group company is not an Micro, Small, or Medium Enterprise. Always verify the supplier’s Udyam Registration status and classification before applying Section 43B(h), Micro, Small, or Medium Enterprise  Form 1, Clause 22 reporting, or Schedule III disclosure requirements.

Step-by-Step Guide: How to Verify MSME Registration Status Using PAN

Step 1: Keep the Required Information Ready

Before starting the verification process, ensure you have the following details:

• PAN (Permanent Account Number)
• Registered mobile number of the enterprise
• Access to the One-Time Password sent to the registered mobile number

Note: One-Time Password verification can only be completed through the officially registered mobile number.

Step 2: Select the PAN-Based Verification Option

On the Micro, Small, or Medium Enterprise /Udyam verification platform, choose the option to search or verify MSME registration using PAN rather than the Udyam Registration Number.

Step 3: Enter the PAN Details

Enter the PAN of the business exactly as recorded in official records.

Important: Any error or mismatch in the PAN entered may result in unsuccessful verification.

Step 4: Complete One-Time Password Authentication

To validate the request:

• An One-Time Password will be sent to the registered mobile no.
• Enter the One-Time Password within the prescribed time limit.
• Upon successful verification, access to the Micro, Small, or Medium Enterprise /Udyam registration details will be provided.

Step 5: View MSME Registration Details

Once the verification process is completed, the following information can be accessed:

• Udyam Registration No
• Name of the Enterprise
• Micro, Small, or Medium Enterprise Category (Micro, Small, or Medium)
• Registration Status (Active/Inactive)
• Date of Registration
• Option to download the Udyam Registration Certificate

Red Flags While Verifying MSME/Udyam Status

A single MSME classification flag maintained in your vendor master can have far-reaching compliance implications. Therefore, maintaining accurate and up-to-date MSME status in your vendor database is essential to ensure consistency across tax computations, tax audits, corporate compliance filings, and financial statement disclosures.

Accurate MSME classification affects several statutory compliances, including Section 43B(h) disallowance under the Income-tax Act, Clause 22 of Form 3CD in the Tax Audit Report, MSME Form 1 filings under the Companies Act, Schedule III MSME disclosures in financial statements. An incorrect Micro, Small, or Medium Enterprise status can lead to errors in tax computation, audit reporting, corporate filings, and financial statement disclosures.

The same information forms the basis for four critical statutory reporting and disclosure requirements:

• Verify the authenticity of a vendor’s MSME registration.
• Determine applicability of Section 43B(h) of the Income-tax Act.
• Identify whether the vendor qualifies as a Micro, Small, or Medium Enterprise.
• Support Form 3CD Clause 22 reporting during tax audits.
• Facilitate MSME Form 1 filings under the Companies Act.
• Ensure accurate Schedule III MSME disclosures in financial statements.
• Validate vendor master data using PAN, MSME Registration, and business details.

A PAN-based MSME verification report therefore acts as a single source of truth for vendor due diligence, tax compliance, audit reporting, and MSME-related disclosures.