New MSME Classification: Raises the Investment Limits and Adds Turnover as Another Criteria

The Ministry of Micro, Small and Medium Enterprises (MSME) has come out with a consolidated notification in the form of guidelines for classification and registration of MSMEs. It may be recalled that the Ministry had published a Notification on 1^st June 2020 with new criteria for the classification of MSMEs based on Investment and Turnover. It was also said that it will be effective from 1^st July 2020.

Based on the same, MSME Ministry has issued a detailed notification on 26^th June 2020.

• This Notification gives the detailed criteria for the classification of MSMEs and the procedure for registration and the arrangements made by the Ministry for facilitation in this process.
• Another striking feature of this notification is that it supersedes all earlier notifications issued with regard to classification or registration of MSMEs. Now, the entrepreneurs, enterprises, and the MSMEs have to refer to just this notification for matters relating to classification or registration.
• The notification also says that hereafter, an MSME will be known as Udyam, as this is more closer to the word Enterprise. Accordingly, the registration process will be known as Udyam Registration.
• In another landmark and bold decision, the Ministry has also notified that:

Udyam Registration can be filed online based on self-declaration with no requirement to upload documents, papers, certificates, or proof.

Officials of the Ministry said this is possible because the Udyam Registration process has been fully integrated with the Systems of Income Tax and GST and the details filled in can be verified on the basis of PAN number or GSTIN details.

• Classification of the enterprises.- An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria, namely:–

(i) a micro-enterprise, where the investment in plant and machinery or equipment does not exceed ten million rupees and turnover does not exceed fifty million rupees;

(ii) a small enterprise, where the investment in plant and machinery or equipment does not exceed a hundred million rupees and turnover does not exceed five hundred million rupees; and

(iii) a medium enterprise, where the investment in plant and machinery or equipment does not exceed five hundred million rupees and turnover does not exceed two thousand and five hundred million rupees.

• An enterprise can be registered just on the basis of the Aadhaar number. Other details can be given on a self-declaration basis without any requirement of uploading or submitting any  papers-thus it is a paperless exercise in the true sense;
• As declared earlier, Investment in ‘Plant and Machinery or Equipment’ and ‘Turnover’ are the basic criteria for the classification of MSMEs now;
• The points related to the calculation of investment in plant and machinery or equipment are as follows:

(i) 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.

(ii) 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.

(iii) 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).

(iv) 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.

• The notification clarifies that Exports of goods or services or both shall be excluded while calculating the turnover of any enterprise whether Micro, Small or Medium;
• The process of registration can be done online through the portal which will be made known to the public before 1st July 2020, the date from which this new arrangement is going to be effective.
• In another first, the Ministry of MSME has established a strong facilitation mechanism for the MSMEs. This process is in the form of Single Window Systems at the district level and regional level.  It will help those entrepreneurs who are not able to file the Udyam Registration for any reason. At the district level, the District Industry Centre’s have been made responsible for facilitating the entrepreneurs. Similarly, the Ministry’s recent initiative of Champions Control Rooms across the country has been made legally responsible for facilitating such Entrepreneurs in registration and even thereafter.
• Those people who do not have a valid Aadhaar Number can also approach the Single Window Systems for facilitation along with adhaar enrollment request or identity, bank photo passbook, voter ID card, passport or driving license, and the Single Window Systems will facilitate them in registering after getting the adhaar number.

Minister of MSME, Shri Nitin Gadkari while releasing the new guidelines today said these steps and strategies will give a strong message that the Ministry is standing strongly behind the MSMEs who are facing several challenges at this time.

Tag: MSME