After the announcement made by the Finance Minister Smt. Nirmala Sitaraman on 13th May, 2020 regarding the measures taken by the government for the businesses covered under the MSME Sector, it is become the Hot Topic of discussion that what is MSME and how to get registration under MSME and what are the benefits that a business can reap out the registration under MSME. So we have made an attempt here to address these issues in the greatest interest of our readers.

What is MSME:

It is known as MICRO (in Hindi it is ‘Suksham’), Small (In Hindi it is termed as “Laghu”) & Medium (In Hindi it is termed as “Madhyam”) Enterprises.

A separate Ministry is there which is looking after the matter related to MSMEs. Further, an Act namely Micro Small & Medium Enterprises Act, 2006 is also there to the benefit of MSMEs.

Sector Covered Under MSMEs:

Only Manufacturers and Service Providers are eligible to take registration. Traders/Wholesalers are not covered.

Constitution of Business:

Any Form of Business whether it is Proprietary Concern, Partnership Firm, LLP or Company is eligible to take registration. There is no discrimination regarding the constitution of business.

Criteria for Registration under MSMEs:

If we talk about the before announcement scenario the Criteria for eligibility was seen purely on the basis of Investment made in the Plant & Machinery (in case of manufacturing enterprise) or investment in Equipment (In case of Service Providing Enterprise), and there are separate investment limits for Manufacturing sector and Service Sector, now after the amendment as announced, there are two broad changes in the definition of MSMEs.

  • The Separate Investment Limits are done away with. I.e. now onwards single parameters will be applicable for both the sectors.
  • In addition to the Limits of Investment, Turnover Limits are to be seen in order to test the eligibility.

Both the Situations are summarized in the Table Below to have the clear understanding. The Entities who are now applying for the MSME registration has to provide their investment in Plant & Machinery as well as turnover. However it is pertinent to note here that there is no detailed guidelines laid by the government that on which date the Investment or for which year the turnover will be considered for the registration. Such detailed guidelines are awaited from the Government side.

Status of Business Earlier (Before 13.05.2020) Amended (Same for Mfg & Service Sector)
MICRO Mfg. Sector:

Investment in P&M up to Rs. 25 Lac

Service Sector:

Investment in Equipment up to Rs. 10 Lac

Investment:

up to  Rs. 1 Crore

Turnover:

up to Rs. 5 Crore

SMALL Mfg. Sector:

Investment in P&M is more than 25 Lac but up to 5 Crore

Service Sector:

Investment in Equipment more than 10 Lac up to Rs. 2 Crore

Investment:

up to Rs. 10 Crore

Turnover:

up to Rs. 50 Crore

MEDIUM Mfg. Sector:

Investment in P&M is more than 5 Crore but up to 10 Crore

Service Sector:

Investment in Equipment more than Rs. 2 Crore but up to Rs.5 Crore

Investment:

up to  Rs. 20 Crore

Turnover:

up to Rs. 100 Crore

Documents Required for Registration under MSME:

1. Aadhar Card of Authorized Person (I.e. Proprietor, Any Partner, Any Director)

2. Social Category of Authorized Person

3. Name of Enterprise, Type of Enterprises

4. PAN of the Enterprises

5. Registered Address of Business

6. Location of Plants

7. Date of Commencement

8. Bank Details

9. of Person Employed

10. Investment in Plant and Machinery/Equipment & Turnover Details. (Note: Value of Plant & Machinery to be taken as the Cost and not the after depreciation value)

11. National Industry Classification Code(NIC Code)

Major Benefits of MSME Registration:

1. Sense of Security Regarding Payments:

A major beneficial provision which is applicable on the MSMEs is contained under Section 15 and Section 16 of MSME Act, 2006, it provided that if a business covered under MSME sold his product or Provide services to the buyer, then buyer has to make payment with in Forty Five Days from the date of acceptance of Goods or Services and in case the buyer did not made the payment with in the aforesaid period then he shall be liable to pay interest at the rate of three times more than bank rate. Further, if the situation becomes worse regarding the payment, then MSME registered can move to the legal way with more confidence.

2. Easy Reach of Finance:

Before the announcement, government also supports the MSMEs by instructing the banks to provide the loans to MSMEs with some relaxations in terms of rate of interest or requirement of Collateral Security up to a specified Limit of Rs. 2 Crore as per the criteria set by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). So that MSME businesses can start their business and scale up their business without not going to deep complexities of the procedural aspects. However, Financing for the MSMEs should not be understood in a very liberal manner, meaning thereby it is not automatic that if the business is registered under MSMEs it is sure shot eligible for Financing from Banks, no it is not the case. Bank will examine CIBIL Track Record, Accounts of the Business, Balance Sheets, Income Tax Returns, GST Returns etc. and also regularity of Filing of these statutory requirements. Apart from this Banks will also demands Projections for about 3 year or 5 Year tenure. These all workings have to be done.

3. Subsidy on Patent Registration/Trade Mark

A subsidy is also given to the Enterprise that has the certificate of registration granted by MSME. This subsidy can be availed for Patent/Trade Mark registration by giving application to respective ministry.

4. Reduced Electricity Bills

MSMEs are also entitled to the different tariff for the electricity as compared to Non MSME registered business, it also bring reduced cost to the business and more profit in hand.

Now Letts’s See the Major Announcement made by FM for MSME:

Measures Announced for MSMEs on 13th May 2020

i. 3 lakh Crores Collateral-free automatic loans for business, MSMEs

An emergency credit line has been allowed to business/MSMEs from banks and NBFCs up to 20% of their entire outstanding credit as on 29.2.2020.

Meaning thereby that this relief is for those MSMEs which were already working before lockdown and running loans from banks/NBFCs and running them in standard category and they are facing the cash crunch due to the lock down. For those MSMEs, to resume their operations i.e. to start procuring material, payment of wages/salaries, payments to vendors etc. this facility of emergency credit Line up to 20% of their entire outstanding credit as on 29th Feb 2020.

Eligibility:

Borrowers having outstanding up to Rs. 25 Crores and turnover of Rs. 100 crores are eligible to take benefit.

Tenure

The tenure of the loan would be 4 years with moratorium of 12 months on Principal repayment.

100% credit guarantee

There will be 100% credit guarantee cover to Banks and NBFCs on principal and interest.

Validity

This scheme can be availed till Oct 31, 2020

No fresh collateral

It has been clearly specified that there would not be any guarantee fee or fresh collateral requirement for availing benefit under the scheme.

ii. 20,000 crores subordinate debt for stressed MSMEs

– Stressed MSMEs need Equity Support

– Functioning MSMEs which are NPA or Stressed will be eligible

– GOI will support Rs. 4000 Cr. To CGTMSE

– CGTMSE will partially support the Banks

– Promoters of the MSMEs will be given Debt by Banks which will in turn infuse by the promoter in the Equity of the Unit

iii. 50,000 Crores equity infusion for MSMEs through funds of funds

In order to address the issue of severe shortage of equity in MSMEs during these tough time, The Govt. has proposed to set up Funds of Funds (FoF) with corpus of Rs. 10,000. The corpus would provide equity funds for MSMEs with growth potential and viability. This step would help to expand MSME size as well as capacity and will also encourage listing of MSMEs on main board of stock exchanges.

iv. Global Tenders up to Rs. 200 Crore:

 Govt. expands scope for global tenders for MSMEs In order to protect the MSMEs from unfair competition from foreign companies, the Govt. has decided to take a major step towards Self-reliant India by disallowing Government procurement tenders up 200 Crores for foreign Companies, this step would give major boost to medium enterprises in India which faces tough competition at hands of foreign players.

Note: The above enumerated measures are discussed as per the Announcements made by FM, we are expecting a detailed guidelines in near future regarding the practical execution of these measures.

Concluding Remarks:

By announcing so, government tried to push the sentiments of businesses and also gives strong indication that government is more focused on this sector. In the times to come, when the economic activities will resume after lockdown, we can see the potential growth in this sector if policies implanted as planned and agencies on whose shoulders responsibility of implementing the policies lies, works in harmonized manner. However, for the businesses entities it is advisable that the whole measures for MSMEs should not be solely seen with lenses of availing loan facilities. MSME registration has far more reaching benefits as we discussed upwards. So, we strongly suggest to avail this opportunity by registering your business under the MSME Act if business meets the criteria of Investment in Plant & Machinery and Turnover.

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Qualification: CA in Practice
Company: N G R & Associates
Location: FARIDABAD, Haryana, IN
Member Since: 10 May 2020 | Total Posts: 7
Nishant Singla is Fellow Member of Institute of Chartered Accountants of India (ICAI) M. No. 536056 . He has completed his Chartered Accountant Course in the Year 2014; he has also completed Certificate Course of Valuation of Shares conducted by ICAI in the year 2015 View Full Profile

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7 Comments

    1. nishanttax says:

      absolutely right that criteria for Recognition of Medium Enterprises is revised to Rs. 50 Crore for Investment and Rs. 250 Crore for Turnover. But at the time of writing this article limit was not revised… it was announced as Rs. 20 crore investment and Rs. 100 Crore Turnover

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