Micro, Small and Medium Enterprises-Definition

Definition of Micro, Small and Medium Enterprises-2020

After 14 years since the MSME Development Act came into existence in 2006, a revision in MSME definition was announced in the Atmanirbhar Bharat package in May, 2020. The Central Government, after obtaining the recommendations of the Advisory Committee, notified revised criteria for classifying the enterprises as micro, small and medium enterprises, with effect from the 1st July, 2020, as below:

1. Classification of enterprises

  • a micro enterprise, where the investment in plant and machinery or equipment does not exceed Rupees One crore and turnover does not exceed Rupees Five crores;
  • a small enterprise, where the investment in plant and machinery or equipment does not exceed Rupees Ten crore and turnover does not exceed Rupees Fifty crores; and
  • a medium enterprise, where the investment in plant and machinery or equipment does not exceed Rupees  Fifty crore rupees and turnover does not exceed Rupees Two hundred and Fifty crores.

2. Becoming a micro, small or medium enterprise

  • Any person who intends to establish a micro, small or medium enterprise may file Udyam Registration online in the Udyam Registration portal, based on self-declaration with no requirement to upload documents, papers, certificates or proof.
  • On registration, an enterprise (referred to as – Udyam in the Udyam Registration portal) will be assigned a permanent identity number, known as – Udyam Registration Number.
  • An e-certificate, namely, ― Udyam Registration Certificate, shall be issued on completion of the registration process.

3. Composite criteria of investment and 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.

4. Calculation of investment in plant and 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 section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery.

5. Calculation of turnover

  • 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.

The Reserve Bank further said in case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration.

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