MSMEs form the backbone of India's economy, contributing roughly 30% of GDP, 36% of manufacturing output, and 45% of exports, while employing over 7.5 crore people across more than 1 crore registered units. For practising professionals, staying current on classification thresholds and compliance obligations is essential to correctly advising clients.
Revised Classification Criteria (effective 1 April 2025)
Announced in the Union Budget 2025-26 and notified via S.O. 1364(E) dated 21 March 2025, investment limits were raised 2.5x and turnover limits 2x :
| Enterprise | Investment (old → new) | Turnover (old → new) |
|---|---|---|
| Micro | Rs 1 cr → Rs 2.5 cr | Rs 5 cr → Rs 10 cr |
| Small | Rs 10 cr → Rs 25 cr | Rs 50 cr → Rs 100 cr |
| Medium | Rs 50 cr → Rs 125 cr | Rs 250 cr → Rs 500 cr |
Classification remains a composite criterion; both investment and turnover must be satisfied and continues to be assessed through ITR and GST data linked to the Udyam Registration portal, so units cannot self-declare figures inconsistent with their filings.
Key Compliance Points for CAs/CS
- Section 43B(h) of the Income Tax Act: Payments to micro and small enterprises (not medium) must be made within the time limit specified under Section 15 of the MSMED Act (45 days, or as agreed, capped at 45 days) — failing which the expense is disallowed in the payer's hands until actually paid. This continues to be one of the most-litigated compliance points for auditors during tax audit season.
- TReDS mandatory participation: Companies with turnover above Rs 250 crore must onboard onto the Trade Receivables Discounting System (TReDS) to protect MSME payment cycles.
- CGTMSE guarantee cover for micro and small enterprises was doubled from Rs 5 crore to Rs 10 crore, backed by a Rs 9,000 crore corpus infusion relevant when advising clients on collateral-free credit options.
- Udyam registration remains voluntary in a strict legal sense but is practically indispensable - unregistered enterprises lose access to priority-sector lending, delayed-payment protection under the MSMED Act, procurement preferences, and subsidy schemes.
Advisory Takeaway
With the classification limits raised, many enterprises that had "graduated" out of MSME status under the old thresholds now fall back within Micro/Small/Medium bands; professionals should proactively review client classifications for FY 2025-26 onward to ensure benefits like Section 43B(h) protection and CGTMSE cover aren't being missed.
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