Definition of MSMES

MSMEs are the back bone of our Country. It can contribute much to our economy and foreign exchange reserves. Following is the definition of MSMEs as per the Government of India notification on June 1, 2020.

Classification Micro Small Medium
Manufacturing Enterprises and Enterprises rendering Services Investment in Plant and Machinery or Equipment:
Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 crore
Investment in Plant and Machinery or Equipment:
Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 crore
Investment in Plant and Machinery or Equipment:
Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore

(Source: https://msme.gov.in/know-about-msme)

MSMEs can function through the following type of organizational structure.

1. Sole Proprietorship concern

2. Hindu Undivided Family

3. Partnership Firms as per the Indian Partnership Act 1932

4. Limited Liability Partnership Firms as per the Limited Liability Partnership Act 2008.

5. Private Limited Companies and Public Limited Companies as per Indian Companies Act 2013.

6. Co-operative Societies as per Indian Co-operative societies Act or the State Co-operative societies Act.

Following are the important provisions of Income Tax Act 1961 and Finance Act 2022 with respect to the above types of organizations.

1. Sole Proprietorship concern

a. It can opt either Old regime of taxation or New regime(Sec 115 BAC) of taxation.

b. Alternate Minimum Tax (AMT) will be applicable in certain special cases

c. Following are the important deductions which can be claimed as per Chapter VIA (If it opts the regime of taxation)

I. Sec 80 CCC .II. Sec 80 CCD III. Sec 80 E IV. Sec 80EE V. Sec 80 GG VI. Sec 80 QQB .VII. Sec RRB. VIII. Sec 80 TTB. IX. Sec 80 U X. Sec 80 C .XI. Sec 80 D.XII. Sec 80 DD .XIII. Sec 80 DDB .XIV. Sec 80 G.XV. Sec 80 GGA .XVI. Sec 80 GGC .XVII. Sec 80 IA .XVIII. Sec 80 –IAB .XIX. Sec 80-1C .XX. Sec 80-IE

XXI. Sec 80-1B .XXII. Sec 80 JJA .XXIII. Sec 80 JJAA. XXIV. Sec 80 CCF

2. Hindu Undivided Family

a. It can opt either Old regime of taxation or new regime (Sec 115 BAC) of taxation.

b. Alternate Minimum Tax (AMT) will be applicable in certain special cases

c. Following are the important deductions which can be claimed as per Chapter VIA (If old regime of taxation opts).

I. Sec 80 C II. Sec 80 D III. Sec 80 DD. IV. Sec 80 DDB V. Sec G .VI. Sec GGA

VII. Sec GGC .VIII. Sec 80 IA .IX. Sec 80 IB. X. Sec 80 IAB .XI. Sec 80 IC

X. Sec 80 IE .XI. Sec 80 JJA XII. Sec 80 JJAA. XIII. Sec 80 TTA

3. Partnership Firms

a. Two type of taxation

i. As per sec 184

ii. Firms which do not comply with sec 184

b. A Flat Income tax rate of 30% on total income of the firms is to be paid by the firms

c. Alternate Minimum Tax (AMT) will be applicable in certain special cases

d. Following are the important deductions which can be claimed as per Chapter VIA.

I. Sec 80G .II. Sec 80GGA .III. Sec 80GGC .IV. Sec 80 IA .V. Sec 80 IB. VI. Sec 80 IAB .VII. Sec 80 IC .VIII. Sec 80 IE .IX. Sec 80 JJA X. Sec 80 JJAA.

4. Limited Liability Partnership Firms as per the Limited Liability Partnership Act 2008.

Income tax Assessment is as same as the assessment of the partnership firms

5. Private Limited Companies and Public Limited Companies as per Indian Companies Act 2013.

Companies can opt assessment as per anyone of the following section

i. Old regime of taxation

ii. Sec 115 BA

iii. Sec 115 BAA

iv. Sec 115 BAB

MAT is not  applicable @15% in the case of company opts taxation under the following sections.

i. Sec 115 BAA

ii. Sec 115 BAB

Following are the important deductions which can be claimed as per Chapter VIA if the company opts taxation under the old regime

I. Sec 80G .II. Sec 80GGA .III. Sec 80GGC .IV. Sec 80 IA .V. Sec 80 IB. VI. Sec 80 IAB .VII. Sec 80 IC .VIII. Sec 80 IE .IX. Sec 80 JJA X. Sec 80 JJAA. XI. Sec 80 GGB

XII. Sec 80 LA XIII. Sec 80 PA

6. Co-operative Societies as per Indian Co-operative societies Act or the State Co-operative societies Act.

a. It can opt either Old regime of taxation or new regime (Sec 115 BAD) of taxation.

b. Alternate Minimum Tax (AMT) @15% will be applicable in certain special cases

c. Following are the important deductions which can be claimed as per Chapter VIA (If old regime of taxation opts)

I. Sec 80G .II. Sec 80GGA .III. Sec 80GGC .IV. Sec 80 IA .V. Sec 80 IB. VI. Sec 80 IAB .VII. Sec 80 IC .VIII. Sec 80 IE .IX. Sec 80 JJA X. Sec 80 JJAA. XI. Sec 80 P

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