Introduction: In a landmark policy update, India has redefined the framework for Micro, Small, and Medium Enterprises (MSMEs) with a new classification system effective from July 1, 2020. This strategic move, encapsulated in notification no. S.O. 1702(E) dated 01/06/2020, under the MSMED Act 2006, introduces a composite criterion for MSME classification, blending investment in plant and machinery with annual turnover. This revision is designed to foster a more inclusive, adaptable, and growth-oriented ecosystem for MSMEs across the nation. By aligning the definition of MSMEs with contemporary economic conditions, the government aims to enhance regulatory clarity, facilitate easier access to credit, and encourage a more robust entrepreneurial landscape.
For clarity and reference, New criteria and Definition of MSMEs, effective from 1st July, 2020, is summarized below.
Important points for classification:
1. It is composite criteria i.e. Both the conditions (Investment and Annual turnover) should be satisfied simultaneously to fall under above specified MSME criteria.
2. Investment in Plant and machinery or equipment criteria is defined as per Income Tax rules and shall include all tangible assets (other than land and building, furniture and fittings). The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.
3. All units with GSTIN listed against the same PAN shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together.
4. 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. Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the CGST Act and the GSTIN.
According to the latest notification no. S.O. 1702(E) dated 01/06/2020, MSMEs are categorized as follows:
- MICRO ENTERPRISE: Where the investment in Plant and Machinery or Equipment does not exceed one crore rupees (₹1 crore) and turnover does not exceed five crore rupees (₹5 crore).
- SMALL ENTERPRISE: Where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees (₹10 crore) and turnover does not exceed fifty crore rupees (₹50 crore)
- MEDIUM ENTERPRISES: Where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees (₹50 crore) and turnover does not exceed two hundred and fifty crore rupees (₹250 crore).
Registration portals for MSMEs: –
1. Udyam registration Platform:
Official website https://udyamregistration.gov.in/Government-India/Ministry-MSME-registration.htm
This is the only Government Portal for MSME (Udyam) Registration. Any person who intends to establish 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.
An e-certificate, namely, “Udyam Registration Certificate” shall be issued on completion of the registration process.
In Udyam registration, MSMEs have option to register on Government e-Market (GeM) Portal, TReDS Portals(one or more), National Career Service(NCS) Portal, NSIC B2B Portal, to avail free .IN Domain and a business email ID.
2. Government e-Marketplace (GeM) portal:
Official website https://gem.gov.in/
It is a Public Procurement Portal for procurement of goods and services for all Central Government and State Government Ministries, Departments, Public Sector Units (PSUs) and affiliated.
3. TReDS Platform:
It is an electronic platform for facilitating the financing / discounting of trade receivables of Micro, Small and Medium Enterprises (MSMEs) through multiple financiers.
Three available platforms are:
1. https://www.invoicemart.com/
Invoicemart is a Trade Receivables Discounting System (TREDS) platform set up in order to resolve the credit challenges faced by the MSMEs.
2. www.m1xchange.com
M1xchange provides an online invoice discounting and factoring solutions, purchase bill and trade receivables discounting system between MSMEs and large corporates through financiers.
3. https://www.rxil.in/
RXIL, is a India’s first TReDS exchange platform that supplies working capital to MSMEs, promoting economic development.
The Udyam Registration of MSMEs, investment classifications, and various incentives reflect an ongoing commitment to fostering growth within this sector. MSMEs enjoy enhanced access to credit facilities, incentives, simplified registration processes, encouragement for growth, and integration with digital platforms etc.
Conclusion:
The change in MSME classification implemented in July 2020 has undoubtedly brought about numerous benefits for businesses falling under this category. This updated classification aims to streamline the identification and support mechanisms for MSMEs, ensuring that the benefits and incentives provided by the government are targeted towards enterprises of appropriate sizes. These benefits not only support the growth and sustainability of individual businesses but also contribute significantly to the overall economic development of the nation. As MSMEs continue to thrive and innovate, they serve as the backbone of the economy, driving inclusive growth and prosperity.
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