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Micro, Small & Medium Sector Enterprises (MSME)

Introduction, Classifications, Registration & Filing Process, Schemes & Benefits

Aakanksha Singhal
Aakanksha Singhal

Published on: Jan 29, 2021

Monika Taparia
Monika Taparia

Updated on: Feb 1, 2021

(15 Ratings)

ABSTRACT

MSMEs have become the new gravitating stimulus of the corporate world. They are progressively becoming pre-eminent in the evolution of flourishing economies because they provide an indispensable addition to the overall product manufacturing, revenue propagation, workforce deployment, technical innovations, and exaltation of entrepreneurial prowess.

In India, the MSME sector contributes 30% to the overall GDP and 49% to export revenue.

The honorable Union Minister for Road Transport & Highways & MSME, Shri Nitin Gadkari had recently spoken in a press release about the intended visions of the Ministry of MSME.

“In a move to strengthen the MSME sector, and the ‘Aatmanirbhar Bharat,’ initiative, the Indian government is looking at bringing in law, ensuring MSME dues are paid within 45 days as delayed payment is a major problem faced by MSMEs”

INTRODUCTION

Micro, Small & Medium Enterprises Development Act in 2006, classifies enterprises into two categories

  1. Manufacturing Enterprises means enterprises engaged in the activities of manufacturing or production of goods/ products
  2. Service Enterprises means enterprises engaged in providing or rendering services

CLASSIFICATION OF MSME

Under Atmanirbhar Bharat Abhiyan, Government w.e.f 1st July, 2020 has revised the MSME classification based on a common yardstick

Category Basis Investment In Plant & Machinery Basis Turnover
Micro Enterprise Not exceeding Rupees One Crore
(INR 1,00,00,000)
Not exceeding Rupees Five Crores
(INR 5,00,00,000)
Small Enterprise Not exceeding Rupees Ten Crores
(INR 10,00,00,000)
Not exceeding Rupees Fifty Crores
(INR 50,00,00,000)
Medium Enterprise Not exceeding Rupees Fifty Crores
(INR 50,00,00,000)
Not exceeding Rupees Two Fifty Crores
(INR 2,50,00,00,000)

If an enterprise exceeds the ceiling limits prescribed for current classification category any 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 or turnover.

CALCULATION OF INVESTMENT IN PLANT AND MACHINERY

  • Linked to ITR filed for previous years under IT Act, 1961 for old enterprises
  • For new enterprises calculation will be based on self-declaration by the promoter of the enterprise & such relaxation shall cease after 31st March of the FY in which it will file its 1st ITR
  • Purchase Value whether 1st or 2nd hand shall be considered excluding GST amount on self-disclosure basis (for New enterprises w/o ITR)
  • Plant or machinery or equipment have same meaning as is under IT Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings)

CALCULATION OF TURNOVER

  • Linked to information w.r.t turnover and exports from IT Act or GST Act and the GSTIN
  • Exports of goods or services or both shall be excluded while computation of turnover for classification of enterprise
  • Enterprises not having PAN will on self-declaration basis furnish info related to its turnover till 31st March, 2021 and thereafter PAN & GSTIN shall be mandatory

REGISTRATION AS MSME

  • Registration Form is available online at udyamregistration.gov.in
  • Only Aadhaar Number is required for registration as MSME
  • Once Aadhaar number is furnished OTP will be sent on linked mobile number for validation
  • On Successful completion of registration, an enterprise will be assigned a permanent identification number to be known as “Udyam Registration Number”
  • An e-certificate, namely, “Udyam Registration Certificate” shall be issued within 1-2 working days of form submission
  • MSME registration process is cost- free and based on self-declaration
  • No documentary testaments vital for MSME registration
  • PAN and GST linked details w.r.t investment and turnover shall be picked up automatically from Government databases
  • PAN & GST number is mandatory from 01.04.2021 for all the MSME enterprises
  • Only one Udyam Registration for a single enterprise and any number of activities inclusive of manufacturing or service or both are to be detailed in one Registration
  • The existing enterprises registered before 30th June 2020, shall continue to be valid only for a period up to the 31stday of March 2021. All existing enterprises shall obtain fresh registration after Ist April 2021

Requirement of Aadhaar number for MSME registration shall be follows

S.No Constitution of Enterprise Requirement
1 Proprietorship Firm Proprietor
2 Partnership Firm Managing Partner
3 HUF Karta
4 Company/ LLP/ Cooperative Society/ Trust/ Society GSTIN and PAN along with Aadhaar number of the authorized signatory

FILING OF RETURNS BY COMPANIES (Non MSME)

Companies are required to file half yearly returns in MSME Form 1 with the Registrar of Companies in respect of outstanding payments to the micro and small for the goods and services supplied by them in case the payment period exceeds 45 days from the date of acceptance or the date of deemed acceptance

Periodicity of Return Penalties for non filing of MSME-01
  • For the month of April to September : 31st October
  • For the month of October to March: 30th April
  • Company have to report the amount of due payment and the reason of the delay while filing the returns.
  • Non-filing of MSME – 01 or giving incorrect or incomplete form in any material aspect, Company shall be liable a fine upto INR 25,000
  • Every officer in default shall be liable to fine of INR 25,000 to INR 3,00,000 or Imprisonment upto 6 months or both.

UPDATION OF INFORMATION & TRANSITION PERIOD IN CLASSIFICATION

An enterprise already having URM shall refurbish info including details of ITR / GST Return & such other relevant info as is required of previous FY on self – declaration basis. Enterprise’s status shall be suspended in case it fails to update the relevant info within a specified timeframe

Enterprise’s classification shall be updated based on such info poised from all the sources (i.e., self-declaration or government sources).

Enterprise shall be converted automatically aptly in case of graduation (lower to higher) or vice-e-versa

An enterprise shall maintain its prevalent status till 1year of the close of registration year in case of conversion in a higher category in terms of Plant and Machinery investment or turnover or both

An enterprise shall continue its prevalent category till the closure of FY in case of conversion in a lower category and benefit of changed status will be available wef 1st April of FY in which such change took place

SCHEMES UNDER MSME

  • Development of Khadi, Village and Coir Industries
  • Prime Minister Employment Generation Programme and Other Credit Support Schemes
  • A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)
  • Building Awareness on Intellectual Property Rights (IPR)
  • Procurement and Marketing Support Scheme (P&MS)
  • Scheme of Surveys, Studies and Policy Research
  • Interest Subsidy Eligibility Certificate (ISEC)

BENEFITS OF REGISTRATION AS MSME

  • Collateral Free Credit: Can avail Collateral Free Credit under Credit guarantee fund trust for MSMEs
  • Trade Receivables Discounting System (TReDS): TReDS is an electronic platform for facilitating the financing of trade receivables of MSMEs from corporate buyers through multiple financiers. It gives MSME vendors to avail funds at cheaper rates through banks and factoring companies.
  • Reimbursement of ISO certification fee: Registered MSME’s can avail Reimbursement of expenses incurred for obtaining ISO certifications
  • Reimbursement of Bar coding Fee: Registered MSME can avail Reimbursement of 75% of the one-time Registration fee for Bar Code and 75% of the renewal fee for starting three years
  • Reimbursement of Patent Fees: Can avail subsidy on Patent Registration fees.
  • Chartered Accountants are also eligible to get MSME registration & avail benefits

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