The Ministry of MSME has been committed towards promoting the MSME sector in India through its MSME Act. This act lays down several procedures for the Ministry to Work with the MSMEs of India in order to strengthen the Indian economy. The Ministry believes that when the MSME sector is strengthened it will lead to better employment opportunities as well as better economic growth for the nation.
2. 2
What are the basis for classification of Micro, Small or Medium
Enterprises under the MSME Act? How does the Ministry
ensure that Enterprises are reporting correct data?
3. 3
The Ministry of MSME has been committed towards promoting
the MSME sector in India through its MSME Act. This act lays
down several procedures for the Ministry to Work with the
MSMEs of India in order to strengthen the Indian economy. The
Ministry believes that when the MSME sector is strengthened it
will lead to better employment opportunities as well as better
economic growth for the nation.
4. 4
In order for the Act to be able to deliver what it promises there is a
need to differentiate the business into Micro, Small and Medium
Enterprises. The Ministry of MSME has laid down its fundamentals
clearly in it's the MSME Act, 2006. These fundamentals are pivotal
when it comes to forming the basis of any policies aimed at
providing any kind of support or benefits to businesses in India.
After all it will be difficult to understand which business requires
what kind of support or assistance without understanding its scale
and its ability to absorb those benefits. With constrained economic
resources that the government has to work with this can be the
basis to reduce over spilling of resources which might be caused by
granting more support or benefits that businesses can absorb. It
also ensures there is no under assistance being given and a fair
practice is at play while providing assistance to so many of the
businesses in India.
5. 5
Even though the Ministry of MSME laid down criteria of classification
of Micro, Small or Medium Enterprises in 2006, the same has been had a
need of update with the ever changing market and economic conditions
of the country in recent times. Considering this need the Ministry of
MSME has been carrying required updates to the Act via its
notifications released in November 2013 and June 2017. In a recently
done revamp to meet the new age requirements of facilitating the Act
the ministry has recently released a notification numbered S.O.1702 (E)
on 1st June 2020 and the same has been published in the Gazette of
India.
Let's discuss the latest classification of enterprises as Micro, Small or
Medium Enterprises as notified by the Ministry of MSME.
6. 6
Any enterprise shall be primarily classified into Micro, Small or
Medium Enterprises based upon the following criteria:
• An enterprise will be classified as Micro if their investment in
plant & machinery or equipment is under Rs. 1 Crore and their
turnover is under Rs. 5 Crore.
• An enterprise will be classified as Small if their investment in plant
& machinery or equipment is under Rs. 10 Crore and their
turnover is under Rs. 50 Crore.
• An enterprise will be classified as Medium if their investment in
plant & machinery or equipment is under Rs. 50 Crore and their
turnover is under Rs. 250 Crore. Any Enterprises which exceed the
above mentioned limits will not be allowed to register themselves
under the MSME Act and won't enjoy the benefits and assistance
given under the Act.
7. 7
I am sure you must be wondering as to how Enterprises move between Micro, Small
& Medium classifications if their amount of turnover or investment change from
year to year and break the ceiling limit of that particular classification in which
they are already classified.
The answer is simple, if any enterprise happens to exceed the limit on the amount
of either investment or turnover specified in their current classification then they
will qualify for the next classification immediately. This isn't the same in
situations where the amount happens to be lower than the specified limit. In that
case in order to be qualified in the lower tier the enterprise needs to match both
the criteria for investment as well as turnover in order to be shifted into the lower
criteria of classification.
An important factor that enterprises need to consider is that even though many
enterprises have multiple entities registered under their business, the MSME Act
considers any enterprise with multiple GST registered against the same PAN as
one entity only. This has been done to avoid under-reporting of actual figures by
splitting businesses into different entities just for the sake of
misrepresentation.dh
8. 8
How does the Ministry ensure that enterprises are reporting the correct data
when filing for their registrations under these various classifications you
may ask? Well, they Ministry has a solution even for that.
While calculating the investment in plant & machinery or equipment it
will fetch data in the Income Tax Returns of the previous years filed
under the Income Tax Act, 1961. Only in case the enterprise is a new one
and has no previously filed ITRs, their information will be collected on a
self-declaration basis by the promoter which will then be verified when the
enterprise files their ITR after the year ending on March that year.
9. 9
The same can be asked when it comes to reporting of turnover by
the Enterprises. How does the Ministry plan to verify that
information is correct?
As PAN is mandatory for every registration, the ministry will fetch
data filed in the Income Tax Return as well as GST Returns of the
enterprises to verify whether the information entered is as per
records. In case of new enterprises, a grace period up to 31st March
of the current financial year will be given after which the
enterprises will be liable to file their ITR and GST Returns from
which information can be verified.
10. 10
In order to classify Enterprises into Micro, Small or Medium Enterprises
and provide them with necessary benefits the Ministry of MSME has now
implemented the process of Udyam Registration. Under this registration
enterprises which are new can either self-declare their information or have
the system fetch their information from their previously filed ITRs and
GST Returns. This new and sophisticated system of Udyam
Registration has been introduced with a main purpose of electronically
streamlining data reporting and making it easier for the Ministry to verify
data entered by the applicants.
If any enterprise intentionally misrepresents or attempts to hide any self-
declared facts and figures while applying for their Udyam Registration or
updating their existing registration then such an enterprise will be liable to
a penalty specified under the section 27 of the MSME Act.
