All about MSME Registration and Classification

Micro, Small and Medium Enterprises promotes the development of agro-based industries, start-ups, artisans, small entrepreneurs along with providing platform to showcase their efficiency.

Government is actively involved in growth of MSME sector and provides technical, financial, strategical support to MSME that plays vital role in development of MSME’s.

Ministry of MSME has been supporting MSME through various policies, programmes, training institutes, skill development etc. and people are also inclined towards availing the benefits of being a MSME.

In accordance with the Micro, Small and Medium Enterprises Development Act, 2006, (“Act”) business can be classified as Micro, Small and Medium on basis of their investment in capital and turnover.

The above said classification has been recently revised, which got implemented from 1st July 2020.

MSME Classification

The revised Composite Criteria of Investment in Plant & Machinery/equipment and Annual Turnover is as given below:

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

To fulfil the above said criteria it is important to note that enterprise has to comply both criteria to remain in particular category if either of the parameter is changed, it will cease to exist in that category and be placed in the next higher category.

For example: If annual turnover of a Micro enterprise increases from Rs. 5 crores than it will be upgraded to next category i.e. Small enterprises.

However, to move to lower category both parameters i.e. investment and turnover needs to be revised

For example: If annual turnover of a Small enterprise falls upto or below 5 crores and investment in plant and machinery downgraded to not more than Rs. 1 crore than only it can be recategorized as Micro enterprise.

Understanding Criteria

Each enterprise must be aware of the criteria under which it is falling. For example, a middle-sized entrepreneur wants to register itself as a MSME to sustain in the market by availing benefits granted to MSME. Now such enterprise must assess itself that under what category it will be registered. Such assessment can be done on basis of investment made in plant and machinery and turnover.

Section 7 of MSME Act deals with classification of enterprises and notification no. S.O. 2119(E) dated 26.6.2020 explained plant and machinery and investments as follows:

Plant and Machinery:

  • The expression “plant and machinery or equipment” of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).
  • 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.
  • In accordance with MSME Notification dated 5th October 2006 the cost of certain items shall be excluded from the calculation of the amount of investment in plant and machinery.

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.

In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st
March of the financial year in which it files its first ITR.

Calculation of Turnover:

  • 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 Central Goods and Services Act (CGST Act) and the GSTIN.
  • The turnover related figures of such enterprise 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.

Registration Requirement as per revised notification

As per notification dated June 26,2020:

  1. All enterprise willing to get registered as MSME enterprise must register themselves on new portal “Udyam Registration Portal” from 1st July 2020.
  2. After registration, an identity number will be generated known as “Udyam Registration Number” and e certificate will get generated known as “Udyam Registration Certificate.”
  3. All existing enterprises which is already registered MSME should re-register themselves at “Udyam Registration Portal”.
  4. All enterprises registered till 30th June, 2020, should assess their investment in plant and machinery and turnover limits as they shall be now re-classified in accordance with the notification.
  5. The existing enterprises registered prior to 30th June, 2020, shall continue to be valid only for a period up to the 31st March, 2021.
  6. An enterprise registered with any other organisation under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.

Grievance and facilitation of Registration

  • Registration process are facilitated by a champion control rooms functioning at various institutions of MSME and The District Industries Centres (DIC).
  • Any entity who are not able to register themselves may approach above said centres to resolve their queries.
  • In case of any discrepancy or compliant the General Manager of DIC who will entertain the complaints.

All existing MSME enterprises who have not yet registered themselves are advised to register at Udyam Portal prior the 31st March, 2021 and no enterprise shall file more than one Udyam Registration. MSME are building future of Indian economy and to contribute towards this growth, entities must remain compliant with necessary rules and guidelines.

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