Overview
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly growing and dynamic sector of the Indian economy over the last decade. India has more than 6 crore units falling under MSME categories which contribute approximately 29% to the country’s GDP.
These enterprises not only play a crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialisation of rural and backward areas, thereby, reducing regional imbalances, and assuring more equitable distribution of national income and wealth.
MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.
Recommended: How to register for GST online step by step
Definition of MSME
Previous MSME Classification
Criteria : Investment in Plant & Machinery or Equipment
| Classification | Micro | Small | Medium |
| Manufacturing Enterprise | Investment < Rs. 25 lakhs | Investment < Rs. 5 Cr. | Investment < Rs. 10 Cr. |
| Service Enterprise | Investment < Rs. 10 lakhs | Investment < Rs. 2 Cr | Investment < Rs. 5 Cr. |
Revised MSME Classification (Updated up to 28-06-2020)
Composite Criteria : Investment and Annual Turnover
| Classification | Micro | Small | Medium |
| Manufacturing & Services | Investment < Rs. 1 Cr. And Turnover < Rs. 5 Cr | Investment < Rs. 10 Cr. And Turnover < Rs. 50 Cr. | Investment < Rs. 50 Cr. And Turnover < Rs. 250 Cr |
Note:Now there will be no “Udyog Aadhaar Registration”. The same will be replaced by “Udyam Registration” w.e.f. 1st July 2020.
Method of Calculation of Value of Investment in Plant and Machinery or Equipment
| Particulars | Previous Manner of Calculation | New Manner of Calculation |
| Related Notification | S.O. 1722(E) dated October 5, 2006 | S.O. 2119(E) dated June 26, 2020 |
| Meaning of Plant and Machinery or Equipment | No such clear meaning provided earlier | The meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 and shall include all tangible assets (other than land and building, furniture and fittings). (This has expanded the scope of items which can be included in Plant and Machinery. As per Income Tax Rules, vehicle, computer and its peripherals, books etc. are considered as P &M) |
| Value to be taken from | For the Value, following documents could be relied upon: (1) A copy of the invoice of the purchase of plant and machinery; or (2) Gross block for Investment in plant and machinery as shown in the audited accounts; or (3) A certificate issued by a Chartered Accountant regarding purchase price of plant and machinery. (As per RBI Notification RBI/2017-18/21 – FIDD.MSME & NFS. BC.No.10/06.02.31/2017-18) | In case of Existing Enterprises- The value will be taken from Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961. In case of New Enterprises (where no prior ITR is available)- The value will be based on self-declaration* of the promoter of the enterprise (such relaxation shall end after the 31st March of the financial year in which it files its first ITR) *The purchase (invoice) value of the plant and machinery, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST) for self- declaration by the promoter. i.e. the GST part will not be considered while calculating the value of Plant and machinery. |
| Exclusions from the Value | The cost of items specified in Explanation I to Section 7(1) shall be excluded. (The list of such items is provided by S.O. 1722(E) dt. October 5, 2006) | The cost of items* specified in Explanation I to Section 7(1) shall be excluded. *Items provided under the Explanation-Pollution Control,Research and Development, Industrial Safety Devices & such other items as may be specified. (Note: The old notification S.O. 1722(E) issued under this explanation is superseded by the new MSME notification.) |
| Basis of criteria of Enterprises | One Udyog Aadhaar Registration was available to one PAN. | 1)All units with GSTIN listed against the same PAN shall be collectively treated as one enterprise and 2)the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise. |
How to calculate Turnover of the Enterprise
The value of turnover is to be calculated as follows:
| Particulars | In case of Existing Enterprises | In case of New Enterprises |
| Value of Turnover to be taken from | ITR and GST Returns | Self-declaration Basis (for a period upto 31st March,2021 and thereafter PAN and GSTIN shall be mandatory.) |
| Exclusions from the turnover | Export of Goods or services or both | Export of Goods or services or both |
Validity of Enterprises (Udyog Aadhaar) Registered till 30th June 2020
| Particulars | Validity |
| All existing Enterprises registered prior to 30th June 2020 | 31st March 2021 |
Note:All existing enterprises registered under EM Part-II or UAM shall register again on the Udyam Registration portal on or after the 1st day of July, 2020 which will be reclassified according to this notification.
Also Read: How to file GSTR 9C online step by step guide
MSME Registration Documents
| Nature of Concern | Document Required |
| a proprietorship firm | Aadhaar Number of Proprietor |
| a partnership firm | Aadhaar Number of Managing Partner |
| a Hindu Undivided Family (HUF) | Aadhaar Number of Karta |
| a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust | GSTIN and PAN along with Aadhaar number of the Concern itself |
MSME Online Registration Process
- The form for registration shall be as provided on the Udyam Registration portal.
- There will be no fee for filing Udyam Registration.
- Aadhaar number shall be required for Udyam Registration.
- In case, an enterprise is duly registered as an Udyam with PAN, any deficiency of information for previous years when it did not have PAN shall be filled up on self-declaration basis.
- No enterprise shall file more than one Udyam Registration, provided that any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration.
Also Read:What is capital gain?How it is calculated?
Updation of information on Portal and Reclassification of Category
- An enterprise having Udyam Registration Number shall update its information online in the Udyam Registration portal, including the details of the ITR and the GST Return for the previous financial year and such other additional information as may be required, on self declaration basis.
- Failure to update the relevant information within the period specified in the online Udyam Registration portal will render the enterprise liable for suspension of its status.
- Based on the information furnished or gathered from Government’s sources including ITR or GST return, the classification of the enterprise will be updated.
- In case of graduation (from a lower to a higher category) or reverse graduation (sliding down to lower category) of an enterprise, a communication will be sent to the enterprise about the change in the status.
Validity of Old Category and Applicability of Reclassified Category
| Particulars | Details | Validity of Old Category | New Category to be effective |
| Graduation (Upward Classification) (Eg. Small to Medium) | Due to change in terms of investment in plant and machinery or equipment or turnover or both (Turnover is exceeding Rs. 50 crore) | Till expiry of one year from the end of the year of registration (31st December 2021) | From the subsequent Year after the expiry of one year from the close of the year of registration (1st January 2022) |
| Reverse Graduation (Downward Classification) (Eg. Small to Micro) | Due to change in terms of investment in plant and machinery or equipment or turnover or both (Investment in Plant and Machinery is less than Rs.1 Cr. and Turnover is less than Rs.5 Cr.) | Closure of the Financial Year in which change took place (31st March 2021) | From 1st April of the financial year following the year in which such change took place (1st April 2021) |
Frequently Asked Questions(FAQ’s)
1.Applicability of New Udyam Registration?
On or after 01.07.2020.
2.Validity of Udyog Aadhar?
Till 31.03.2021.
3.How the value of Plant & Machinery will be taken – Cost or WDV?
WDV.
4.What are the Exclusions from Plant & Machinery?
As per Section 7(1) of MSMED Act,following will be excluded:
1.Pollution control,
2.Research and development and
3.Industrial safety devices
4.As specified by notification
5.What are the Inclusions in Plant & Machinery?
As per the latest notification of MSME,for the purpose of meaning of P&M, the Income Tax Rules, 1962 has to be referred.
6.How value of Plant & Machinery will be linked with IT?
It will be done through feeding of data on portal for getting new Udyam Registration.
7.How Turnover will be calculated?
Turnover (from GST returns) of all GSTIN linked with one PAN has to be aggregated and also it will be linked with turnover as per ITR.
8.Is Trader eligible being MSME?
Trading activity is neither a manufacturing activity nor a service activity hence cannot be registered as MSME.
9.How much is the Penalty of contravention of MSMED Act?
Minimum Rs. 10,000/-.
