TReDS — Trade Receivables Discounting System

Only Micro, Small, and Medium Enterprises (MSMEs) as defined under Section 7 of the Micro, Small and Medium Enterprises Development Act 2006 (MSMED Act) are eligible to participate as sellers on TReDS platforms. The enterprise must hold a valid Udyam Registration Certificate issued under the Ministry of MSME's Udyam Registration portal. The RBI's Master Directions on Trade Receivables Discounting System (Reserve Bank of India (Trade Receivables Discounting System) Directions, 2021) restrict seller participation to MSMEs to protect small enterprises' cash-flow rights. Entities whose MSME registration has lapsed or been cancelled are not eligible to upload invoices on TReDS until re-registration is completed.

Yes. The Ministry of MSME issued a notification dated 2 November 2021 under Section 9 of the MSMED Act 2006 making it mandatory for all companies with a turnover of ₹500 crore or more, and all Central Public Sector Enterprises, to onboard at least one TReDS platform. Non-compliance exposes a buyer to action under Section 22 of the MSMED Act 2006, which requires interest at three times the RBI bank rate on delayed payments beyond the agreed credit period (maximum 45 days). The Department for Promotion of Industry and Internal Trade (DPIIT) monitors compliance through the SAMADHAAN portal. We assist corporate buyers in completing onboarding documentation, factoring agreements, and RBI-prescribed KYC requirements on platforms such as Receivables Exchange of India Ltd (RXIL), A.TReDS (Axis Bank), or M1xchange.

Section 15 of the Micro, Small and Medium Enterprises Development Act 2006 requires every buyer to make payment to an MSME supplier within the agreed period or, where no agreement exists, within 15 days. Section 2(b) of the MSMED Act 2006 caps the maximum permissible credit period under any written agreement at 45 days from the day of acceptance of goods or services. On TReDS, invoices can be uploaded only within this 45-day ceiling per the RBI Master Directions on TReDS (2021). If a buyer delays beyond this period outside TReDS, compound interest at three times the bank rate notified by RBI is payable under Section 16 of the MSMED Act 2006.

The discounting of trade receivables by a TReDS-licensed financier constitutes a financial service exempt from GST under Entry 27 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017, which exempts services by way of extending deposits, loans, or advances where the consideration is in the form of interest or discount. However, any separate processing fee, platform fee, or administrative charge levied by the TReDS platform operator is taxable at 18% GST under SAC 9971. The MSME seller receives the net discounted amount; there is no GST liability for the seller on the sale of receivables itself. Corporate buyers should ensure their AP team does not incorrectly treat the discount charge as a deductible TDS-applicable payment — it is not subject to TDS as it is paid to an RBI-licensed entity.

To onboard as a seller, an MSME must submit its Udyam Registration Certificate, GST registration certificate, cancelled cheque for the designated bank account, KYC documents (PAN, Aadhaar or incorporation documents), and a Board Resolution or authorisation letter for the designated signatory. For each invoice uploaded, the platform requires the GST-compliant tax invoice issued under Section 31 of the CGST Act 2017, a buyer acceptance or acknowledgement, and confirmation that goods or services have been delivered. The RBI Master Directions on TReDS (2021) require the platform to verify buyer acceptance before financing is released. We assist sellers in structuring their accounts receivable process so that invoices are GST-compliant and accepted by buyers within the 45-day window to maximise TReDS eligibility.