India’s Micro, Small, and Medium Enterprises (MSMEs) base is the largest in the world after China. MSMEs contribute significantly in economic and social development of the country by way of nurturing innovation, entrepreneurship, employment generation, exports and inclusive growth.

According to National Statistical Office, the share of MSME sector in the country’s total GDP during 2018-19 has been 30.3%. Government of India has always laid special emphasis on growth & development of this sector and a recent step was the introduction of Udyam Registration for MSME’s effective 1st July 2020; a simplified process of MSME registration from UAM & EM-II (old process).

This article will enlighten the procedure & requirements for Udyam Registration applicable for (new & re-registration for existing) MSME’s along with the revised definition of Classification of an enterprise as MSME.

Classification of Enterprise as MSME w.e.f 1st July 2020

The governing law for an enterprise to be categorised as MSME has been defined in Micro, Small and Medium Enterprises Development (MSMED) Act notified in 2006. This act seeks to facilitate the development of these enterprises as also enhance their competitiveness through various schemes, privileges & other benefits from Government of India.

During the month of May 2020, while delivering the economic package, as part of the Aatmanirbhar Bharat Abhiyaan, Finance Minister Nirmala Sitaraman announced revisions in the definition of Micro Small and Medium Enterprises (MSME) which was then officially notified in June 2020 to be effective from 1st July 2020. Earlier, the MSMEs were defined on the basis of investments put in, now the revised definitions will also include turnover of the company. Also, the revised definition would consider both Manufacturing & Service enterprises under common metric.

The table below provides the Revised & Previous Classification of Enterprise(Udyam) as MSME:

Revised Classification applicable w.e.f 1st July 2020
Composite Criteria: Investment in Plant & Machinery/Equipment and Annual Turnover
Manufacturing Enterprises and Enterprises rendering Services
Investment in Plant & Machinery
or Equipment
and Annual Turnover
Micro Upto Rs.1 crore Upto Rs.5 crore
Small Upto Rs.10 crore Upto Rs.50 crore
Medium Upto Rs.50 crore Upto Rs.250 crore
Previous Classification
Investment in Plant & Machinery
(Manufacturing Enterprises)
Investment in Equipment
(Service Enterprises)
Micro Upto Rs. 25 Lakh Upto Rs. 10 Lakh
Small Upto Rs.5 Crore Upto Rs. 2 Crore
Medium Upto Rs.10 Crore Upto Rs. 5 Crore

It shall be noted that where an enterprise crosses the ceiling limits specified for its present category in either of the two i.e. investment or turnover, it will cease to exist in that category and would be placed in the next higher category. However, no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.

Considerations for Computing the Value of Investment (P&M/Equipment) & Annual Turnover

The following shall be considered while computing the value of investment in Plant & Machinery and Annual Turnover for an enterprise:

> The expression “plant and machinery or equipment” of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings). The cost of certain items mentioned in the Explanation I to sub-section (1) of section 7 of the MSME Act shall be excluded for arriving at the amount of investment in plant & machinery.

> Value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST).

> Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification. This would eventually benefit more units.

> The data on Plant & Machinery or equipment and turnover will be linked to the Income Tax Act, CGST Act and the GSTIN where the enterprise is existing one and has filed the returns as may be applicable in the respective acts mentioned.

> Where the enterprise is new or do not have PAN and GST the information on investment in plant & machinery or equipment (purchase invoice value) & turnover shall be considered on self-declaration basis for a period upto 31st March 2021 and thereafter PAN & GSTIN shall be mandatory. Hence its understood that w.e.f 01.04.2021 registration as MSME would be possible only for those enterprises holding PAN & GSTIN.

Benefits on being registered as Udyam (Enterprise)

Although the governing act doesn’t make the MSME registration as mandatory and in many cases the need for MSME registration would be called, only for the purpose of compliance & disclosure requirement of any other Governing Acts like Companies Act 2013. But an enterprise (Udyam) on being registered under the said Act it will be able to reap the benefits & privileges as notified by the Government then & there.

Therefore by getting registered under Udyam Registration Portal, the MSME enterprises through the stimulus package could avail collateral free automatic loans, E-market linkages across the board to provide marketing opportunities, protection against delayed payments on material/services supplied, get benefits of financial assistance at lower interest rates, tax rebates, preference while issuing Government tenders, subsidy on electricity, subsidy on patent & barcode registration, benefit to receive the payments within a period of 45 days and many other privileges as well as exemptions.

Udyam Registration Process

For registration an Enterprise (Udyam) needs to follow the following:

> Any person who intends to establish as a micro, small or medium enterprise may file Udyam Registration online in the Udyam Registration portal, based on self-declaration with no requirement to upload documents, papers, certificates or proof.

> The new Udyam Registration is a Life-time registration for an MSME in comparison with the UAM / EM-II which required renewals.

> There will be no fee for filing Udyam Registration.

> A simplified form for registration has be provided in the Udyam Registration portal Where the enterprise has GSTIN and on keying in the same, the Name, location & bank details of the enterprise would be extracted from the GST portal.

> Aadhaar number shall be required for Udyam Registration. The Aadhaar number shall be of the proprietor in the case of a proprietorship firm, of the managing partner in the case of a partnership firm and of a Karta in the case of a Hindu Undivided Family (HUF). In case of a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust, the organisation or its authorised signatory shall provide its GSTIN and PAN along with its Aadhaar number.

> On registration, an enterprise (referred to as “Udyam” in the Udyam Registration portal) will be assigned a permanent identity number to be known as “‘Udyam Registration Number”.

> An e-certificate, namely, “Udyam Registration Certificate” shall be issued on completion of the registration process.

In case an enterprise is duly registered as an Udyam with PAN, any deficiency of information for previous years when it did not have PAN shall be filled up on self-declaration basis. No enterprise shall file more than one Udyam Registration; Provided that any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration. The Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength (Champions) Control Rooms functioning in various institutions and offices of the Ministry of Micro, Small and Medium Enterprises including the Development Institutes (MSME-DI) and District Industries Centres (DICs) shall act as Single Window Systems for facilitating the registration process and further support for the MSME in all possible manner.

Re – registration under Udyam for Existing Enterprises under EM-II or UAM

W.e.f 1st July 2020, every existing enterprise registered under EM–Part-II or UAM shall register again on the Udyam Registration portal. All enterprises registered till 30th June, 2020, shall be re-classified in accordance with the notification dated 26th June 2020. The existing enterprises registered prior to 30th June, 2020, shall continue to be valid only for a period up to the 31stday of March, 2021. An enterprise registered with any other organisation under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.

On having the Udyam Registration Number, the enterprise shall update its information online in the Udyam Registration portal, including the details of the ITR and the GST Return for the previous financial year and such other additional information as may be required, on self-declaration basis. Failure to update the relevant information within the period specified in the Udyam Registration portal will render the enterprise liable for suspension of its status. Based on the information furnished or gathered from Government’s sources including ITR or GST return, the classification of the enterprise will be updated.

To sum up, the new ray of hope for MSME’s through the Udyam Registration process would bring in multifold benefits & privileges empowering the sector to greater progress thereby in better Nation building too.

CA. Jayakrithika A
Partner – AYJ & Co. Madurai.
[email protected]

Author Bio

Qualification: CA in Practice
Company: AYJ & Co Chartered Accountants
Location: Tamil Nadu, IN
Member Since: 11 Sep 2020 | Total Posts: 1

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May 2021