Invoice Discounting & Working Capital

TReDS operates under RBI guidelines issued under Section 10(2) read with Section 18 of the Payment and Settlement Systems Act 2007. RBI circular DPSS.CO.PD.No.2622/02.14.003/2014-15 (December 2014) established the framework. MSMEs as defined under the MSMED Act 2006 are eligible drawees; buyers can be corporates, PSUs, and government entities. Financiers must be RBI-authorised banks or NBFCs registered on the platform.

For TY 2026-27 onwards, discount income (the difference between invoice face value and discounted proceeds) is treated as business income under Section 28 of ITA 2025. The income accrues on the date the financier purchases the receivable, not on invoice due date. TDS under Section 393 (formerly 194A) applies if the discount element exceeds the threshold and the transaction is structured as interest-bearing; pure purchase-of-receivables structures may fall outside Section 393 — the structure must be examined before filing.

Services by a scheduled bank or RBI-regulated NBFC by way of extending loans or advances attract NIL GST under Entry 27 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017. However, if the discount is on a trade receivable purchased outright (factoring), the taxability depends on whether it qualifies as a financial service or a supply of goods. RBI-registered factoring companies are covered under the Factoring Regulation Act 2011; the GST treatment follows Circular No. 102/21/2019-GST.

Under Ind AS 109 (Financial Instruments), derecognition of the receivable depends on whether substantially all risks and rewards are transferred to the financier. In a full-recourse arrangement, the receivable stays on the seller's balance sheet and the proceeds are shown as a secured borrowing. In a without-recourse arrangement meeting Ind AS 109 para 3.2.6 criteria, the receivable is derecognised and the difference between carrying amount and proceeds is recognised as a loss/gain in P&L. The ICAI Guidance Note on Accounting for Receivables Financing (2019) provides the application guidance.

Yes. MCA notification GSR 609(E) dated 2 July 2019 (under Section 9 of the MSMED Act 2006) requires companies with turnover above INR 500 crore to get themselves onboarded on TReDS and file half-yearly returns on the MSME Samadhaan portal. Non-compliance attracts penalties under Section 26 of the MSMED Act 2006, and interest at three times the bank rate applies on delayed payments to MSMEs per Section 16.