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Update:

The ministry of MSME notified the criteria for the calculation of investment and turnover as per the new definition on the 26th of June vide Gazette Id no. CG-DL-E-26062020-220191 and S.O. 2119(E).  

1. Background

In order to promote the growth of Micro, small, and Medium Enterprises (MSMEs), the government of India gives various concessions and extends financial assistance exclusively to the units or enterprises which qualify to be micro, small or medium enterprises.

It is one of the many sectors that have immensely impacted and hit during this pandemic situation. It not only contributes to our country's GDP but also contributes massively by employing lakhs and lakhs of both skilled and unskilled labor, professionals, etc. This article aims to give an overall understanding of the Micro Small and Medium Enterprises and the process and benefits of MSME registration under Udyog Aadhaar.

2. What is meant by MSME?

The definition of MSMEs was revised on the 1st of June 2020. As per the earlier definition, classification was made in terms of manufacturing and service units. However, the new definition has composite criteria and the threshold limit of turnover and investment has also been revised. Due to the outbreak of the COVID-19 pandemic, the entire supply chain beginning from manufacturing of raw materials to selling of finished products to customers was distorted. Laborers were losing their respective jobs, manufacturers were not able to sell what they were producing, wholesalers and retailers were not able to sell their finished goods or services to the customers since they don’t have sufficient disposable income left to spend. Hence, to give a boost to the economy the definition was revised under the Aatma Nirbhar Bharat Abhiyaan.

Old v/s New Classification of MSMEs

A. Old Criteria of Classification

Manufacturing Sector:
(Based on investment in plant and machinery)

1. Micro enterprises - When an investment does not exceed Rs. 25 lakhs during the financial year.
2. Small enterprises - When an Investment of more than Rs. 25 lakhs but not exceeding Rs. 5 crores during the financial year.
3. Medium enterprises- When an Investment of more than Rs. 5 crores but does exceeding Rs. 10 crores during the financial year.

Service sector:
(Based on investment in equipment)

1. Micro enterprises - When Investment does not exceed Rs. 10 Lakhs during the financial year.
2. Small enterprises - When Investment is more than 10 Lakhs rupees but not exceeding Rs. 2 Crores during the financial year.
3. Medium enterprises - When Investment is more than Rs. 2 Crores but not exceeding Rs. 5 Crores during the financial year.

Existing MSME Classification

B. New and updated Criteria of Classification

There is no classification in terms of Service or Manufacturing units as earlier:

1. Micro - Any enterprise having an investment up to Rs 1 crore and turnover under Rs 5 crore.
2. Small - Any enterprise having an investment up to Rs 10 crore and turnover up to Rs 50 crore.
3. Medium - Any enterprise having an investment up to Rs 50 crore and turnover under Rs 250 crore.

Cabinet further amends the definition of MSMEs

New Calculation criteria of Investment and Turnover:

Calculation of Investment

1. Plant and Machinery will have the same meaning as in the Income Tax Rules, it shall include all tangible assets except 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. For a new enterprise, where no prior ITR is available, the investment will be based on self-declaration and such relaxation shall end after the 31st March of the financial year in which it files its first ITR

2. The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR

3. The cost of certain items specified in the Explanation I to sub-section (1) of section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery

Calculation of turnover

1. 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.

2. Information regarding turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.

3. The turnover related figures of such enterprises which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.

3. Is it mandatory to register MSMEs?

The Micro, small and medium enterprises development act 2006 makes it mandatory for Micro, Small, and Medium Enterprises to register themselves with the government and to obtain Udyog Aadhar for availing benefits provided under the MSME Development Act.

The terminology like MSME, SSI or Udyog Aadhaar is one and the same thing. In other words, there is only one registration which micro, small, or medium enterprises have obtained and that is Udyog Aadhaar.

Udyog Aadhaar

Under MSME all the kinds of enterprises either in manufacturing or service sectors can avail the benefit by getting Registered and registering themselves for Udyog Aadhaar.

4. Information and Documents required for MSME Registration

• Udyog Aadhaar is a free facility by government, and there is no fee charged by the government

PAN in case of companies, LLP, or cooperative society, it is optional in all other cases

Aadhaar Number and PAN of the applicant, OTP shall go to his mobile and email ID for confirmation

Address Proof of Establishment, either in the form of a sale deed or valid rent agreement

Bank Account Information (Bank Statement and Cancelled Cheque)

NIC Code of the products and services in which the enterprises are dealing at the time of registration

• Copy of Industrial Licence

Bills and Receipts of purchase of machinery

• Sale and Purchase bills

• In the case of Unregistered Partnership Firm
○ Partnership Deed

• In the case of Registered Partnership Firm
○ Registration Certificate

• In the case of Company

○ Memorandum of Association (MOA)
○ Article of Association (AOA)
○ Certificate of Incorporation
○ A copy of the resolution passed in the General Meeting of the company
○ A copy of the Board Resolution authorising a director to sign the MSME application

MSME registration under Udyog Aadhaar- Benefits, Requirement, and Process

5. MSME Registration Process

Step 1: Users can opt for Online or Offline Mode and For Registration Aadhaar No. is mandatory.

Step 2: The Online Form is required to be submitted using Udyog Aadhaar Registration.

For filing of the online registration form kindly visit
https://udyogaadhaar.gov.in/UA/UAM_Registration.aspx

Udyog Aadhaar Registration Form

Step 3: Verification can be done with the help of E-Aadhaar OTP.

 E-Aadhaar OTP

Step 4: Provisional Registration is used by MSMEs prior to commencement of Business and is valid for 5 years or 60 Months. Benefits of obtaining Provisional Registration involves.

a. Assists in Obtaining Bank Loans and
b. NOC from regulatory authorities

Step 5: After E-Verification of Aadhaar continues with the further process of submitting your personal details.

Validate & Generate OTP

Enter address details

Add Activity

Add More Activities

Step 6: After submission of the form OTP will be generated on the mobile phone linked with your Aadhaar.

Enter OTP sent on your Aadhaar linked Mobile number

 

Step 7: Download the Online Generated Udyog Aadhaar after final submission of the form filled in step 5 & 6.

 Online Generated Udyog Aadhaar

6. MSME Registration Benefits

• Every MSME whether in the manufacturing or service sector is entitled to collateral-free loans at a cheaper rate of interest in comparison to rates prevailing in the market.

• Such enterprises can avail 1% concession on overdraft facilities as per scheme but it differs from bank to bank.

• Easier, convenient and cheaper to obtain business licenses.

ISO certification costs are also refundable from the government.

50% subsidy is given at times of any Patents Registration.

• Such enterprises are eligible for a subsidy for Industrial Promotion as suggested by the government.

Concession in electricity bills is given to every enterprise registered as MSME by submitting an application along with the certificate of registration by MSME.

The Ministry of Micro, Small and Medium Enterprise helps enterprises by giving them the right to collect interest on the delayed payments. The settlement of such disputes must be done in minimum time through conciliation and arbitration.

In case, if any Micro Small and Medium Enterprises registered enterprise supplies any goods or services to a buyer then the buyer is required to make the payment on or before the agreed date of payment or within 15 days from the day they had accepted the goods and services from MSME or SCI registered business (if there is no mention of the date of payment).

If the buyer delays the payment for more than 45 days after accepting the products or services then the buyer has to pay the compound interest along with interests (monthly) on the amount that was agreed to be paid. The interest rate is three times the rate that is notified by the Reserve Bank of India.

 

Conclusion:

Micro Small and Medium enterprises are not only the backbone in case of our country but it is considered as the key and major component in contributing and building an economically sound and viable Financial system of any country.

By providing such benefits and concessions to Micro Small and Medium Enterprises, it will definitely help in turning around the weak economic structure of our country and will contribute towards the goal to build a self-reliant India that is why the Economic Package is called Aatma Nirbhar Bharat Abhiyaan.

Updated Method of Calculation of Investment and Turnover

For an updated method to calculate the value Investment and turnover under MSME, do check out the following article to know more.
https://www.caclubindia.com/articles/msme-investment-turnover-calculation-criteria-notified-42007.asp


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Category GST, Other Articles by - Sanchit Aggarwal 



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