Benefits of MSME Registration Under MSME

In continuation with the earlier article where registration process under MSME Act was elaborated, this article covers the benefits of being an entity registered under MSME, Act.  Read-Registration under MSME Act

♦ Benefits of MSME registration

Collateral Free Automated Loan

• A scheme for in principal approval for business loan up to 5 crores, available in 59minutes, is already in existence. The initiative aims at automation of various processes to loan appraisal in such a way that an eligibility letter is issued. The rate of interest starts from 8% p.a. onwards. As the platform is directly connected to CGTMSE (Credit guarantee fund trust for MSMEs) scheme, collateral coverage is not mandatory.
• Moreover under the recently announced Atmanirbhar Bharat Scheme, government has extended emergency line of credit for an amount up to 20% of the outstanding amount as on 29^th February 2020 as collateral free. Borrowers with up to 25 crores outstanding and Rs. 100 crores turnovers are eligible. Also, this loan will have a 4 years tenor with a moratorium of 12 Months on principal repayment and no credit guarantee fees to be charged. There is 100% credit guarantee cover to banks and NBFCs on principal and interest. This scheme can be availed till 31^st Oct 2020.
• In normal scenario, if a borrower doesn’t pay the loan instalments within 90 days of being due, then banks classify such loans as non-performing asset (‘NPA’), but if an entity is registered under MSME, then the period for classification of loan as an NPA is 180 days.

How MSME loans happen in 59 MINUTES

1. Simple Online application process

2. Documents required for loan procedure :

• Director/ Partner details : Basic, personal  & ownership details
• GST identification number
• IT returns in XML format
• Bank statements for last six months in pdf format.

3. Apply here : https://www.psbloansin59minutes.com/business-loan

4. Banks who offer MSME loans: PNB, SBI, BOI, BOB, IDBI and other nationalised banks.

5. Private Banks may not approve loans even after submitting the certification along with cover letter. In such scenario the entity can communicate with the bank manager or file grievance at https://www.rbi.org.in/Scripts/Complaints.aspx  as the last resort.

Equity Infusion for MSMEs through fund of funds (‘FOF’)

Since Government has observed the inability of raising debt by MSME’s beyond a particular level, it recently announced Rs. 50,000 crores Equity Infusion for MSME’s through fund of funds. It means that the government will invest Rs. 10,000 crores to create FOF & the rest Rs 40,000 crores will be put in by investors.  This will help MSME in following ways:

• Will help to expand MSME size as well as capacity;
• To improve the growth potential and viability; the new start-ups and young entrepreneurs will get benefitted from this corpus if they are registered under MSME units;
• FOF will operate through a Mother Fund & few Daughter Fund;

(Fund of Fund that works with venture capitalists to create funds is known as daughter fund & the government’s contribution is the mother fund)

• The Fund structure will help leverage Rs 50,000 crores of funds at daughter funds level.
• Will encourage MSMEs to get listed on main board of stock exchanges.

The Fund of Funds is managed by SIDBI, which invests the money into Alternate Investment Funds, which in turn invest in start-ups*

*Note: Until now, the government has not officially released any details on how the proposed MSME Fund of Funds will be run or what kinds of companies it would invest in. 

Reduction in Rate of Interest

All the type of loans cash credit/ overdraft/ term loans etc. shall be eligible for interest subvention for 2% – 3% from Government of India. Hence it is beneficial for entities to get registered under MSME Act.

Provision of Subordinate Debt (Covered in Budget 2020)

To meet liquidity requirements for few companies, under Atmanirbhar Bharat, the Government of India would facilitate the provision of Rs 20,000 crores Subordinate Debt for functioning MSMEs which are delayed on repayment of loans or have made their loans as NPA. It would also be fully guaranteed via the Credit Guarantee Trust for the Medium and Small Entrepreneurs (CGTMSE).

MSMEs being a group of small and medium size units require more liquid funds than large corporates for their business expansion, but banks and NBFCs due to doubtful mind and to play safe are often unwilling to extend the line of credit for these units. Knowing the fact that subordinate loans carries a higher rate of interest, they are listed as a long-term liability on the company books and thus help the MSME units with more liquid capital to invest in their growth and expansion in the present scenario. In case of any defaults, the entrepreneur is required to first clear the unsubordinated loans before the subordinate debt.

From the point of view of working capital and liquidity, the above provision is a boon for MSMEs.

Disallowance of Global Tender up to Rs. 200 crores

Apart from liquidity enhancement measures, recently in COVID-19 relief measures government had announced economic support package for MSME where the government has taken a step towards increasing the market for MSME in India.

Moreover, Indian MSMEs and other companies have often faced challenges and unfair competition from foreign companies. Therefore, Global tenders will be disallowed in Government procurement tenders up to rupees 200 crores.

The government has notified amendments to General Financial Rules (GFR) to ensure that goods and services valued less than Rs 200 crore are being procured from domestic firms, a move which will benefit MSMEs.

Protection against delay in payment

Companies have been mandated to release all payments to a MSME Enterprise outstanding for more than 45 days immediately.

Hence forth delayed payments can be enforced on MSME Samadhaan platform through the MSME Facilitation Council and the entity can recover the delayed payments along with three times bank interest of SBI. Note that period of credit is by default prescribed as 45 days maximum if not specified. Lower credit period can be as agreed upon between the buyers and sellers.

About MSME Samadhaan Platform

MSME Samadhaan is the delayed payment monitoring system. Ministry of MSME has taken an initiative for filing online application by the supplier MSE unit against the buyer of goods/services before the concerned MSEFC of his/her State/UT. These will be viewed by MSEFC Council for their actions and also will be visible to Concerned Central Ministries, Departments, CPSEs, State Government, etc. for pro-active actions.

It’s a simple process, and even new MSME units registered in between can apply for clearance of their outstanding dues. Just have to visit https://samadhaan.msme.gov.in/MyMsme/MSEFC/MSEFC_Welcome.aspx, proceed with the application using its MSME number. If in case the entity’s application gets rejected, the reason for the same will be reflected.

Also as per Section 19 of the MSMED Act, 2006, no court will entertain the decree or order given by the MSME Council for recovery of dues unless the buyer has deposited 75% of the disputed amount with the court and court shall give a portion of this amount to MSME units. Before proceeding with legal case, the MSME unit must write to the auditors of the buyers informing about the outstanding claims and also specify the outstanding amount along with interest to be mentioned in the annual statement of accounts as per Companies Act, 2013.

MSME Samadhaan Portal

Note: If the entity’s application gets rejected, it receives email on their registered email address with the reason for rejection.

Other Benefits

• Reimbursement of expenses up to 75% or Rs. 75,000 incurred for obtaining ISO Certificate
• Reimbursements for 75% of the trade fairs or exhibition cost for three times in a year and once in an international exhibitions.
• Reduction of 50% government fees for patent and trademark application using MSME / SSI / Udyog Aadhaar Registration Certificate.
• MSME symbol is like a status symbol for an entity
• Subsidy on NSIC Performance and Credit ratings
• Reservation policies to manufacturing / production sector
• Very easy to get Licenses, approvals and registrations
• Waiver of Stamp Duty and Registration Fees for land in backward area
• Eligible for INDIAN PROMOTION SUBSIDY
• Concession in electricity bills for land in backward areas.
• Enterprises that have MSME registration can enjoy Direct Tax Exemption in the initial year of business, as mention in the scheme by Government and depending on business activity.
• It can take credit for minimum alternate tax (MAT) to be carry forward for up to 15 years instead of 10 years

♦ Impact of Budget 2020 over MSME Units

One of the key focuses of Union Budget 2020 was to accelerate the growth of MSME sectors. Here are the highlights:

Requirement for Audit

In order to reduce the compliance burden on small retailers, traders, shopkeepers who comprise the MSME sector, the turnover threshold for audit has been raised from the existing Rs. 1 crore to Rs. 5 crore. The increased limit shall apply only to those businesses which carry out less than 5% of their business transactions in cash.

Trade Receivable Discounting system

In order to enhance economic and financial sustainability of MSMEs, amendments have been proposed to the Factor Regulation Act 2011. The amendment will enable NBFCs to extend invoice financing to MSMEs through Trade Receivable Discounting systems or TReDS. The objective of TReDS, launched by the Reserve Bank of India in December 2016, is to facilitate financing of invoices / bills of MSMEs drawn on corporate and other buyers, including the Government Departments and PSUs, by way of discounting by financiers.

Ease of doing business

An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs.

E-logistics market

It will create a single window e-logistics market and focus on generation of employment, skills and making MSMEs competitive. A National Logistics Policy will be released soon which will clarify the key regulators.

Restraint on import of items being produced by Domestic MSMEs

Special attention has been taken to put measured on restraint of import of those items which are being produced by our MSMEs with better quality. Keeping in view the need of this sector, customs duty is being raised on items like footwear and furniture.

• Schemes Active for MSME sector

There are several schemes rolled out by the Government of India for catering to the development of the MSME Sector. Some of them are listed below. 

There are total 9 schemes active for MSME sector. For detail access one can visit:  https://msme.gov.in/all-schemes

Note: Under capital linked capital subsidy scheme (CLCSS)   an entity can claim 15% or Rs. 15 Lac Capital Subsidy on Automatic and Semi-Automatic Machines procured through bank finance.

To avail such benefits a further registration is required on www.msmedatabank.in.

♦ Information Technology Initiative

There are currently four active portals under this initiative to ease the business of MSME sector and allow them the reach for speedy solutions, resolutions and actions.

For in detail access of these portals, one can visit: https://msme.gov.in/it-initiative

Prime Minister launches CHAMPIONS

On 1^st June 2020, PM Narendra Modi launched “CHAMPIONS”, a technology platform to empower MSME units. “CHAMPIONS” is a short form given for the aim of   Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength.

(Link – https://champions.gov.in/MyMsme/grievance/COM_Grievance_Welcome.aspx)

This initiative acts as a single window for registrations, filing grievances, updates on different schemes, feedback, FAQs and other matters related to MSME Sector. Following images show the actions that can be done through CHAMPIONS 

 The webpage at the above link conveys the objectives behind the launch of this initiative.

♦ Conclusion

Future of MSME

Looking at the current situation of our country and how it has affected our economy, registration of an entity under MSME Act is a medium to enjoy the benefits available to such unit. MSME segment is expected to play a significant role in the emergence of the Indian economy. The development of this segment is extremely critical for start-ups, to meet the national imperatives and employment generation across urban and rural areas of the country. In this way, it can nurture and support development of new age entrepreneurs who have the potential to create globally competitive businesses from India.

As India embarks on a new wave of economic revival and growth, adoption of an MSME oriented framework will provide the necessary impetus to seize the opportunities created by:

• Emergence of domestic demand led by significant changes in spending and consumerism;
• Increase in spending in infrastructure and defence sectors;
• Increase in foreign direct investments in existing and emerging businesses in India;
• Make in India initiatives.

Disclaimer: The contents of this article are for information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

Authors –

VIshal Kothari, Partner, MASD Email i’d: vishal.kothari@masd.co.in

Riddhi Thakkar, Consultant, Email I’d: riddhi.thakkar@masd.co.in