Decoding the Notification issued by Ministry of Micro Small and Medium Enterprise on June 26, 2020

The Finance Minister had made announcement on May 13, 2020 regarding proposed changes to be made in definition of Micro Small and Medium Enterprise (MSME) and had mentioned that turnover will also be included as one of the criteria for enterprises to become MSME. In this regard, Ministry of Micro, Small and Medium Enterprises (hereafter referred as “GoI”) vide notification dated June 1, 2020 notified various criteria for classification of MSME.

However, the above notification was superseded by the notification dated June 26, 2020 issued by GoI. In the said notification, GoI has notified certain criteria for classifying the enterprises as MSME and has specified the form and procedure for filing the memorandum.

In this article we have discussed the aforesaid notification and the open issues yet to be addressed.

Through the said notification, GoI has made an attempt to clarify the various ambiguities that were left unanswered in erstwhile notifications. This can be taken as first step towards streamlining and linking the data of MSMEs which is available with various government department. Also, it is a step towards ease of doing business in India. This will certainly help the GoI to frame the policies for MSME which will directly benefit MSMEs.

Topics covered in the article:-

1. Definition of MSME

2. Decoding the term ‘Turnover’

3. Decoding the term ‘Investment’

4. Decoding the term ‘Plant & Machinery and Equipment’

5. Registration process and related links

6. Treatment of enterprises already registered as MSME

7. Details of various government websites available to help MSME on one click

1. Definition of MSME

As per the notification dated June 26, 2020, an enterprise, either engaged in manufacturing activity or rendering service, shall be considered Micro, Small or Medium Enterprise if it fulfils following conditions:-

Particulars Micro Small Medium
Investment in Plant and Machinery Less than Equal to

Rs. 1 Crore

Less than Equal to

Rs. 10 Crore

Less than Equal to

Rs. 50 Crore

AND AND AND
Turnover Less than Equal to

Rs. 5 Crore

Less than Equal to

Rs. 50  Crore

Less than Equal to

Rs. 250 Crore

Points to be noted:-

i. This definition shall come into effect from July 1, 2020

ii. It is optional for an enterprise to register themselves as MSME.

iii. Both the condition i.e. Investment as well as Turnover needs to be satisfied by an enterprise to qualify as either Micro or Small or Medium enterprises

iv. If any enterprise breaches the ceiling of any of the criteria. i.e. Investment or Turnover, it shall be ceased to be classify under that criteria and will be classified in next category

v. Any enterprise whose investment is either more than Rs. 50 crores or turnover is more than 250 crores shall not be eligible to qualify as MSME

vi. However, on up-gradation they can hold the classification in same category till the expiry of one year from the close of the year of registration.

vii. In case of reverse-gradation, the enterprises shall continue to classify in that category till end of that financial year

Authors View:-

a. GoI is still silent on whether traders will be considered as MSME or not. For all practical purposes traders are registering themselves as MSME

b. GoI may require all the registered MSME to update the Investment and Turnover detail on yearly basis

2. Decoding the term ‘Turnover’

i. Turnover of immediate preceding financial year shall be considered for calculation

ii. To calculate turnover for deciding classification, value of export of goods and services shall be excluded

iii. Turnover  of ALL units with Goods and Services Tax Identification Number (GSTIN) listed against the same PAN shall be added together

iv. GoI shall link information regarding turnover and exports turnover to Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.

v. In absence of PAN, turnover figures shall be considered on self-declaration till March 31, 2021

vi. PAN and GSTIN shall be mandatory post March 31, 2021

Author’s View:-

a. GoI shall link Udhyog Aadhar with Income Tax data as well as GSTIN data. It will extract data from these departments

b. The notification is silent about what if an enterprise is not required to get GST number as per the GST Laws

3. Decoding the term ‘Investment Value’

i. Investment in plant and machinery of immediate preceding financial year shall be considered for calculation

ii. The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return of the preceding financial year filed under the Income Tax Act, 1961

iii. In case of new enterprise, investment shall be considered on self-declaration basis

iv. Purchase value excluding GST shall be considered as part of Investment

v. Both first hand and second hand plant and machinery will be considered for calculation purposes

Author’s View:-

a. Currently, in Income Tax Return (ITR), there is no requirement to mention about original purchase value of the plant and machinery. In our opinion, the ITR for upcoming years may have requirement to furnish purchase price as well

b. In case of business, filing return under presumptive income basis (i.e. under section 44AD and 44ADA of Income-tax Act, 1961) are not required to provide investment detail. In such cases, GoI mayto continue to rely on self-declaration provided by such enterprises or may  amend the ITR f forms

4. Decoding the term ‘Plant and Machinery’:-

i. Plant and Machinery or Equipment shall have same meaning as assigned to Plant and Machinery in Income-tax Rules, 1962 refer https://www.incometaxindia.gov.in/_layouts/15/dit/mobile/viewer.aspx?path=https://www.incometaxindia.gov.in/charts%20%20tables/depreciation%20rates.htm&k=&IsDlg=0

ii. It shall only include Tangible assets

iii. It shall not include Land and Building

iv. It shall not include Furniture and Fixture

5. Registration process and related links

i. One Enterprise – One Udhyog Aadhar

ii. The form for registration as well as Guidelines for filing the online Udhyog Aadhar is available in the Udyam Registration portal (https://udyogaadhaar.gov.in/UA/UAM_Registration.aspx)

iii. Aadhar card with updated mobile number is mandatory to register.

Type of enterprise Aadhar card required
Proprietorship firm Proprietor
Hindu Undivided Family (HUF) Karta
Partnership firm Managing Partner
Limited Liability Partnership Authorised Signatory
Company Authorised Signatory
Cooperative Society or Society or  Trust Authorised Signatory

6. Treatment of enterprises already registered as MSME

i. All MSME registered before June 30, 2020 (either through EM–Part-II or UAM) need to re-register themselves  post July 1, 2020

ii. There existing registration shall be valid till March 31, 2021

7. Details of various government websites available help MSME on a click:-

i. To file complain regarding delay in payment:-https://samadhaan.msme.gov.in/MyMsme/MSEFC/MSEFC_Welcome.aspx

ii. To get all the schemes available for MSME (central as well as state):- http://ideas.msme.gov.in/Default.aspx

iii. Single window for all Suggestion/ Grievances / Guidance / Interaction with MSME department:- https://champions.gov.in/MyMsme/grievance/Entermenu.aspx

Author Bio

Qualification: CA in Practice
Company: RANK Group
Location: Ahmedabad, Gujarat, IN
Member Since: 09 Jun 2020 | Total Posts: 2

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One Comment

  1. Vivek Jain says:

    New Process of MSME Registration takes off in the name of Udyam Registration from 1st July, 2020.

    http://www.udyamregistration.gov.in is a new portal for Udyam Registration launched by the MSME Ministry.

    The portal guides the entrepreneurs step by step as to what they should know, what they should do
    Government has organized a full system of Facilitation for Registration Process.

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