MSME – A Wiser Option To Choose

It’s been a year of this Global Pandemic and a year of the hot discussion of MSME too. Although, the MSME is an older concept but it took a high rise in the discussions when lot of businesses were getting disrupted due to Covid-19. Some of the existing entities took this pandemic as an opportunity and explored in the new avenues of businesses.

What is MSME?

MSME, an acronym for Micros, Small and Medium Enterprises is a legal term given to entities registered under MSMED Act, 2006 under one of the following two categories:

• Manufacturing
• Service

MSME -A separate legal structure?

While addressing a lot of queries from general public i.e. people from non-finance background, I observed a lot of confusion in their minds. These are the most common confusions:

• Some of the youngsters who wanted to start something big, they asked me to suggest something else instead of MSME, such as incorporating a Private Limited Co. as they believe MSME is a discussion for people having shorter vision of business. So, looking up at their confusion, I suggested them to incorporate a company because a WhatsApp conversation is a limitation to clear all the facts.
• While, there is another category of people who has a belief that setting up a partnership firm is easier than going for MSME.

So, now I think it’s a high time to address this ambiguity.

First of all, MSME do not have any separate legal structure.

An entity can be registered as MSME under the following forms:

• Company
• Partnership Firm
• Association of Persons (AOP)
• Hindu Undivided Family (HUF)
• Co-op societies
• Proprietorship

Did you notice something? Almost all the types of entities are covered under MSME.

So, it is now very easy to convey first message that MSME can be a company, a firm or anything else you are desiring of. MSME is an umbrella with multiple colors.

Before proceeding to answer the question “Why MSME?”, let me first brief you on the eligibility part.

Who can opt for MSME?

Earlier, there was separate limits for manufacturing and service sectors, but the above table depicts the revised Composite limit for manufacturing and service sectors both.

Do you still think that MSMEs is a discussion for people having shorter business vision? I don’t think so.

Why to register under this Act?

• Tax Benefits – Yes & No both. No, because there is not any special taxation benefit for MSME, and it is quite logical too. MSME is not giving you any separate legal status, so taxation benefit is not a point to discuss. Yes, because companies registered under MSME is allowed credit for minimum alternate tax (MAT) to be carried forward for up to 15 years instead of 10 years. So, it is undoubtedly an advantage over others.
• E-marketplace – Just think and answer that you are producing a product or giving a service for which, you are provided with a separate market to sell your products and services, of course special market for you means less competition. So, whether you will opt for it or not?

My audience is an intelligent one and they all will say Yes to it.

So, just go for MSME as registration under this Act gives an access to Government e-Marketplace and various other State Government portals which gives easy access to their marketplace and e-tenders too.

So, with one registration you can not only sell your products easily, but it will become easier for you to acquire government tenders too.

• Interest Rates – Almost every flourishing business or a startup runs on debt that means Finance is the first requirement for any business. It is obvious that entities prefer secured debt/loans over the unsecured one because of justified interest rates. For some people, obtaining an unsecured loan is also comfortable and that’s normal. Although, in that case I suggest my clients to ask their lenders to make an investment in their business instead of loans. That is not a discussion here.

So, the main point here is that the bank loans become cheaper as the interest rate is low for MSMEs as compared to other entities and secondly, it becomes easier to obtain loans for MSMEs.

Adding more to this, bank loans are collateral free in case of MSMEs. You might be thinking that why did I mention this line in the last under this point. The answer is practical issues being faced by the entities while approaching the banks for collateral fee loans. Banks do not give collateral free loans easily specifically after the Covid-19 disturbances.

• Subsidy, Exemptions and Bills – Think about the major expenses of running a factory and answer to yourself, how will you feel if you get some relief in the payment of bills etc? Isn’t it great? Of course, Yes.

So, let me brief you on more interesting financial benefits of MSME:

• There is a subsidy on Patent registration by MSME. So, now discover more and avail benefits.
• If you are doing a startup then you will be happy to know that 100% tax exemption is given to MSMEs for innovation startups. So, it’s a perfect time to give a legal shape to your dreams.
• As I mentioned about bills above, there is a concession given to MSMEs in payment/charging of electricity bills. This must be a decision of individual state governments. Some may or may not give this concession.
• Conciliation and Arbitration – Now, it is very interesting point to know. conciliation and arbitration are the processes of settlement of disputes where a mediator is appointed to resolve the disputes. That mediator is known as Conciliator and arbitrator respectively.

What’s the point of discussing them here?

Okay, so let me brief you on this. In any business, one of the major risks is delayed payments. An entity cannot work without money and it is more painful when the money is blocked by the customers. So, here the government is available to help by giving them the right to collect interest on the payments that are delayed from the buyer’s side. This mechanism is operated using the conciliation and arbitration tools.

Further, Section 16 of the MSMED Act provides that the buyer shall be liable to pay compound interest with monthly rest to the MSME supplier at three times the bank rate notified by the RBI. So, just relax and do the business.

• Raw Material Assistance Scheme – provides the financial support to purchase the Raw material for the small medium and micro enterprises. Support is provided for 90 days to purchase of new materials.

Another important question:

Which is better: MSME Registration/Udyog Aadhar Registration/Udyam Registration?

The simplest answer is All of them because all of these are same. These are the alternate names of one single thing i.e. MSME registration.

Quick Checklist for Registration:

It is always advisable to hire a professional for registration process but still before visiting a professional or having a virtual meeting, keep the following documents handy to make the discussion easier:

• Aadhaar of the applicant
• PAN of the applicant
• Number of Employees (Male & Female – count wise)
• GSTIN – not mandatory
• Bank details
• Main business activity
• Total amount of investment

That’s all for today.

For any queries in the above article, the author may be contacted at ca.atulkhurana@gmail.com or 9888855340 (Only whatsapp, No calls)