The Micro, Small and Medium Enterprises Development Act, 2006 was enacted which mainly aimed in the promotion, enhancement of competitiveness and development of Micro, Small, and Medium Enterprises. In a developing country like India, MSME’s are the backbone of the economy which promotes equitable development. These industries are also known as Small-Scale Industries or SSI’s.
What are Micro, Small and Medium Enterprise?
Earlier, the criteria for manufacturing units and service units were different. Now those distinctions between Manufacturing and Service MSMEs are being removed. They will all be defined similarly.
The Enterprises which are engaged in the manufacture or production, processing or preservation of goods or the enterprises which are engaged in providing or rendering of services, up to a specified limit, are known as Micro or Small or Medium Enterprises, as per their respective limits as given below.
It means only those enterprises are considered eligible for Udyam Registration which are either in manufacturing or production or processing or preservation of goods or in providing or rendering of services. In other words, the enterprises which are engaging only in trading i.e. buying, selling importing, exporting of Goods are not eligible for applying for Udyam Registration.
|Enterprise Category||Investment in Plant & Machinery or Equipment||Turnover|
|Micro||Upto Rs. 1 crore||Below Rs. 5 crores|
|Small||Upto Rs. 10 crore||Below Rs. 50 crores|
|Medium||Upto Rs. 50 crore||Below Rs. 250 crores|
Calculation of Investment in Plant, Machinery and Equipment, and Annual Turnover
In order to determine whether the enterprise falls within the limits of MSME and under which category calculation of amount for Investment in Plant, Machinery and Equipment and Annual Turnover is required to be calculated.
A. Investment in Plant & Machinery or Equipment
- 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.
- 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.
- 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.
- 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.
C. Composite criteria of Investment & Turnover for classification
- A composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium.
- If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
- All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and 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.
Benefits of Udyam Registration
- Udyam registration helps in getting government tenders.
- Concession is provided in electricity bills.
- Subsidy is provided in bar code registration.
- Due to the Udyam, the bank loans become cheaper as the interest rate is very low (Upto 1.5% lower than interest on regular loans
- There are various tax rebates available for Udyam
- Becomes easy to get licenses, approvals and registrations, irrespective of field of business as businesses registered under Udyam are given higher preference for government license and certification.
- They get easy access to credit in lower interest rates.
- Registered Udyams gets tariff subsidies and tax and capital subsidies.
- Cost getting a patent, or the cost of setting up the industry reduces as many rebates and concessions are available.
- Under Udyam registration special consideration is given on International Trade fairs
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This information is in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Mind Sync does not accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any information provided herein. On any specific matter, reference should be made to the appropriate advisor.