The term Micro, Small and Medium Enterprises (MSME) is very popular now days. Government is providing more and more relief measures and packages to boost MSMEs because it is the MSME which have the potential to lead India and make self reliant in line with our goal of ‘आत्मनिर्भर भारत अभियान‘ .
MSMEs are governed by Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act, 2006) which came into force w.e.f. 02.10.2006. In this article, I will discuss recent changes related to Classification of MSMEs. (For other detailed provisions related to MSMEs, kindly refer to my earlier article titled – “AN INSIGHT INTO MICRO, SMALL AND MEDIUM ENTERPRISES”).
Existing Criteria for classification of MSMEs:-
Section 7 of MSMED Act, 2006 prescribes the criteria for classification of MSMEs into Micro, Small and Medium enterprises. Existing classification and provisions are as follows:-
| Classification | Manufacturing Sector (Inv. in P&M) | Service Sector (Inv. in Equipment) |
| Micro Enterprises | Upto Rs.25 Lakhs | Upto Rs. 10 Lakhs |
| Small Enterprises | More than 25 Lakh but less than 5 Crore | More than 10 Lakhs but less than 2 Crore |
| Medium Enterprises | More than 5 Crore but less than 10 Crore | More than 2 Crore but less than 5 Crore |
Note : As per Gazette Notification No. 1722(E) date 05.10.2006, while calculating investment in Plant & Machinery, the original price thereof, irrespective of whether the plant and machinery are new or second hand, shall be taken into account. But expenses eg. cost of installation, power generation set, R&D equipment and pollution control equipment, fire fighting equipment etc. shall not be included in determining investment in Plant & Machinery.
New criteria for classification of MSMEs:-
The changes in classification criteria were long awaited. Although it was proposed long back, government recently announced the same via Press Release on 13.05.2020.
|
Classification |
Manufacturing & Service Sector (No distinction) | |
| Investment in Plant & Machinery | Turnover Limits | |
| Micro Enterprises | Less than 1 Crore | Less than 5 Crore |
| Small Enterprises | Less than 10 Crore | Less than 50 Crore |
| Medium Enterprises | Less than 20 Crore | Less than 100 Crore |
Key Takeaways:
1. Earlier Manufacturing and Service Sectors were differentiated in terms of investment limits in Plant & Machinery. Now the distinction between the two has been eliminated.
2. Earlier only investment in Plant & Machinery was the only criteria for classification but now addition criteria of Turnover has also been added.
3. The criteria of Plant and Machinery and Turnover go hand in hand. Meaning, both the conditions must be fulfilled to be eligible in the prescribed category.
But still waiting clarifications from government on the following points:
1. What will be the definition of Plant & Machinery.
2. How the value of Plant & Machinery will be calculated for the purpose of classification.
3. How the Turnover will be calculated and what will form part of it.
4. Whether traders will also be eligible for MSME benefits. Etc. etc.
Note: All above amendments have been announced by our respected Finance Minister via a Press Release dt. 13.05.2020. Notifications/Circulars containing the above changes against the relevant act are still awaited.
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From the Author:
Government has further revised limits for Medium Enterprises vide Notification S.O. 1702(E) dt. 01.06.2020. As per this, for Medium Enterprises, investment in P&M limit is enhanced from 20 to 50 Cr. and Turnover limit from 100 to 250 Cr.
These Changes will be effective wef 01.07.2020 only.