Recently Government of India has brought in many important changes in the MSME sector. Now, in this article we will look into the changes in the classification of Micro, Small and Medium Enterprises.
The definition for classification of Micro, Small and Medium Enterprises (MSME) is revised. The revised classification i.e. new criteria come into effect w.e.f 1st July 2020. Now, the revised classification is:
If, an enterprise’s investment in Plant & Machinery or Equipment does not exceed 1 Crore and turnover does not exceed Rs. 5 Crores then, the enterprise is classified as a “MICRO ENTERPRISE”
If, an enterprise’s investment in Plant & Machinery or Equipment does not exceed 10 Crore and turnover does not exceed Rs. 50 Crores then, the enterprise is classified as a “SMALL ENTERPRISE”
If, an enterprise’s investment in Plant & Machinery or Equipment does not exceed 50 Crore and turnover does not exceed Rs. 250 Crores then, the enterprise is classified as a “MEDIUM ENTERPRISE”.
Other important clarifications on classification:
The Investment and Turnover is a composite criterion
If an enterprise exceeds the ceiling limits fixed in either of the two criteria of investment or turnover, then the enterprise ceases to continue in that category instead will be classified in the next higher category.
If an enterprise’s Investment and turnover both goes down and comes below the specified limits for its present category, then only the enterprise will be downgraded and reclassified as a lower category enterprise.
There may be more than one unit in an enterprise dealing with different products or service. However, all the units with GSTIN against the same PAN will be treated as a single enterprise and the turnover and investment of all such units collectively will be considered for the purpose of identification of the category of the MSME.
The Changes in the registration process of MSME are:
As per the revised guidelines all the enterprises (existing enterprises also) are required to register / re-register and get the ‘Udyam Registration Certificate’.
Who ever intends to establish a MSME, he/she has to register the firm in “Udyam Registration Portal” online. The registration process is online, without any paperwork or uploading of documents. Further the registration is based on ‘Self-declaration’ of the promoter and it is completely free of cost.
Once the registration process is completed the firm will be awarded with an e-certificate called, ‘Udyam Registration Number’ and will be assigned with a ‘Udyam Registration Number’. The Udyam Registration Number is a permanent identity for the enterprise.
Aadhaar number plays crucial role in the registration process.
Aadhaar number of
proprietor in the case of a proprietorship firm,
managing partner in the case of a partnership firm
karta in the case of a Hindu Undivided Family (HUF) is needed to complete registration process.
If the enterprise is a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust, then the organisation or its authorised signatory shall provide its GSTIN and PAN along with its Aadhaar number are needed to complete the registration process.
Timelines for existing enterprises:
New enterprise can register and obtain ‘Udyam Registration Number’ at any time.
The enterprises which were registered / issued with ‘Entrepreneurs Memorandum- Part II’ (EM-II) and Udyog Aadhar Memorandum (UAM) issued till 30th June 2020 may re-register in “Udyog Registration Portal before 31st March 2021.
Validity period of the ‘Udyam Registration Certificate’ obtained on self-declaration basis is 31st March 2021.
Calculation of investment in plant and machinery or equipment:
For a new enterprise value of investment in plant and machinery or equipment is the purchase value i.e. invoice price excluding GST, irrespective of the purchase is first-hand or second-hand and this would be on the basis of self-declaration basis.
For existing enterprises,
The Written Down Value as per the IT Act, declared in the IT Return of the previous year.
Calculation of turnover:
For the purpose of calculation of turnover, Turnover excluding the turnover on account of exports of goods or services or both will be considered.
Updation of data by an MSME:
Every year, the enterprise possessing the ‘Udyam Registration Number’ will update the data like, investment in plant and machinery or equipment, ITR, GST return in the portal. Failure to update the data will lead to suspension of MSME status for the enterprise.
At the time of updation itself automated classification of the enterprise i.e. Micro / Small / Medium will be done and the same would be informed to the entrepreneur.
While submitting the data care should be taken by the entrepreneurs, as whoever intentionally misrepresents or attempts to suppress the self-declared facts and figures appearing in the Udyam Registration or updation process shall be liable to such penalty as specified under section 27 of the Act.
We will discuss on the advantages of registering the enterprise as Micro, Small or Medium enterprise if it is eligible in next articles.