[MSME Notification No. S.O.2119 (E), dated the 26th June, 2020]

Classification of Enterprises as Micro, Small and Medium Enterprises (MSME) W.E.F. 01.07.2020

Nobody has any doubt that the Government has always been in favor of providing benefits to Micro, Small and Medium Enterprises (MSMEs) and that why there are many benefits of MSME registration. There are many benefits of MSME registration in India, which can be only availed if the business had registered itself as an MSME/SSI under MSME Act.

It is important to note that the industry was waiting for definition change in MSME for quite a long time. As there was fear among MSME that if they grow in terms of number, they might lose the title of being MSME and lose benefits of Government provided for MSME.

Therefore, it was great news for everyone when a revision in MSME definition was announced in the Aatmanirbhar Bharat Package on 13th May, 2020. MSME will no longer have to worry that growing in number might make them ineligible to avail MSME benefits.

The Government, in the Ministry of Micro, Small and Medium Enterprises has issued a notification number S.O.1702 (E ), dated the 1st June, 2020,  to make the change the MSME definition in accordance with Aatmanirbhar Bharat Package on 13th May, 2020. New definition and criterion have been notified and will come into effect from 1st July, 2020.

As per said notification number S.O.1702 (E ), dated the 1st June, 2020, the definition of Micro manufacturing and services units was increased to Rs. 1 Crore of investment and Rs. 5 Crore of turnover. The limit of small unit was increased to Rs. 10 Crore of investment and Rs 50 Crore of turnover. Similarly, the limit of medium unit was increased to Rs. 20 Crore of investment and Rs. 100 Crore of and Rs. 250 Crore of turnover.

Classification of Enterprises (w.e.f. 01.07.2020):

As per revised definition, An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria, namely:–

Revised MSME Classification
Sr. No. Enterprises Investment in and Turnover Limit
(i) A Micro Enterprises Investment in plant and machinery or equipment; AND does not exceed one crore rupees

(<Rs. 1 crore)

Turnover does not exceed five crore rupees

(<Rs. 5 crore)

(ii) A Small Enterprise Investment in plant and machinery or equipment; AND does not exceed one crore rupees

(<Rs. 10 crore)

Turnover does not exceed five crore rupees

(<Rs. 50 crore)

(iii) a Medium Enterprise Investment in plant and machinery or equipment; AND does not exceed one crore rupees

(<Rs. 50 crore)

Turnover does not exceed five crore rupees

(<Rs. 250 crore)

Earlier, MSMEs are classified in two categories, such as manufacturing and service enterprises. Now it has been removed both will be the same. MSMEs were defined on the basis of investments they put, now the revised definitions will also include turnover of the company, this will be notified once changes in the law are made.Under the new definition, manufacturing and service MSMEs will be defined under a common metric that will be a mix of investment in plants and machinery or equipment and turnover.

Existing Definition of MSME valid upto 30th June 2020.

Existing MSME Classification
Criteria: Investment in Plant and Machinery or Equipment
Classification Micro Small Medium
Manufacturing Enterprises Investment <Rs. 25 lakh Investment <Rs. 5 crore Investment <Rs. 10 crore
Service Enterprises Investment <Rs. 10 lakh Investment <Rs. 2 crore Investment <Rs. 5 crore

New Notification No. S.O.2119 (E), dated the 26th June, 2020

Now, on 26th June, 2020, in exercise of the powers conferred by sub-section (1) read with sub-section (9) of section 7 and sub-section (2) read with sub-section (3) of section 8, of the Micro, Small and Medium Enterprises Development Act, 2006, (the Act), the Government, in the Ministry of Micro, Small and Medium Enterprises has issued a notification number S.O.2119 (E), dated the 26th June, 2020. This notification is not for further change in definition of MSME. The increased limits under the notification number S.O.1702 (E ), dated the 1st June, 2020 has been taken same in new  notification number S.O.2119 (E), dated the 26th June, 2020.

However, the said new notification specifies the form and procedure for filing the memorandum and others, namely;

  • Composite criteria of investment and turnover for classification,
  • Calculation of investment in plant and machinery or equipment,
  • Calculation of turnover,
  • Registration process,
  • Registration of existing enterprises,
  • Updation of information and transition period in classification,
  • Facilitation and grievance redressal of enterprises.

It is also pertinent to note that the said new notification has been issued in supersession of the notifications of the Government of India in the Ministry of Micro, Small and Medium Enterprises number S.O.1702 (E ), dated the 1st June, 2020, S.O. 2052 (E), dated the 30th June, 2017, S.O.3322 (E ), dated the 1st November, 2013 and S.O.1722 (E ), dated the 5th October, 2006, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-Section (ii), except as respects things done or omitted to be done before such supersession.

In view of the above, now we have to see the new notification No. S.O.2119 (E), dated the 26th June, 2020, for classification of any industry as MSME and for their registration process at “Udyam Registration portal”.

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.

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4 Comments

  1. deepak says:

    the important change which brings many units under MSME defination is linking it with Income tax rules.
    the investment value now appears to be as per income tax return WDV instead of Gross value as per old notf and includes all assets excluding furniture and land and building

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