The document discusses the classification of enterprises in India into manufacturing and services, focusing on micro, small, and medium enterprises (MSMEs) based on their investment levels. It highlights the significant economic contribution of MSMEs, including employment and GDP, and outlines recent developments in financing and taxation for this sector. Additionally, it proposes various tax reforms to encourage investment and growth within MSMEs, addressing both direct and indirect tax implications.

2. In India, the enterprises have been classified broadly into
two categories
1. Manufacturing ; and
2. Services.
Both categories have been further classified into micro,
small and medium enterprises based on their
investment in plant and machinery or on equipment.

3. Classification Investment ceiling for plant, Machinery
or Equipments
Manufacturing Service
Enterprises Enterprises
Micro Upto Rs. 25 lakh Upto Rs 10 lakh
Small Above Rs. 25 lakh & Above Rs. 10
upto Rs. 5 crore lakh & upto Rs. 2
crore
Medium Above Rs. 5 Crore an Above Rs. 2
upto Rs. 10 crore crore & upto Rs.
5 crore

4.  MSME sector is the second largest contributor in terms of
GDP after the agriculture sector in the Indian economy and are
expected to contribute 22 per cent to India's GDP by 2012 up
from current about 17 per cent.
 MSMEs provide employment to 60 million people, which is
nearly 80 to 90 per cent of the employment.
 The SME sector contributes nearly 40 to 50 per cent to Indian
economic activity (production and exports)

5. 1. Various nationalized banks have come forward in the recent years to
finance the funds requirements of MSME sector such as Small
Industries Development Bank of India (SIDBI), Industrial
Development Bank of India (IDBI), and State Bank of India (SBI).
2. Introduction of SME exchange by BSE
 BSE has introduced SME Exchange & got final approval of SEBI
recently. Where the countdown of listing of SME company is
intensifying.
 About 50 companies have already shown interest for listing on BSE
SME Exchange .

6.  100% underwriting of the issue
 IPO issue will be 100% success, irrespective of whether it is
fully subscribed or not.
 Guarantee of listing which encouraging the SMEs, as the
uncertainty of failure of IPO is no longer there.
 The SMEs will need at least 50 investors each investing at
least Rs 1 lakh at the time of IPO and the size of IPO can be as
low as Rs. 50 lakhs.

7.  Taxation as one of the major aspect for business
development requires proper updating and planning.
Here the objectivity is to outline a structure of
fundamental ideas and to facilitate for setting up a
supreme base to handle all the tax affairs relating to
MSMEs.

8.  Taxation is an inseparable part of any business. It can help
business to achieve its corpus if planned well; otherwise it can
cost the company in a very big way. In present economy the
importance of tax planning is well understood by every
corporate. In case of MSMEs tax planning is also crucial for
its sustainability and development.
 As far as MSMEs are concerned Indirect taxes plays relatively
significant role than Direct taxes as basically it is imposed at
the inception stage i.e. production/manufacturing.
 In case of MSME excise duty & income tax in contrast with
other duties and taxes are of utmost importance.

9.  MSME Scheme (Without CENVAT)
Rate of duty in respect of Clearances of Excisable
Goods
Value of Clearance Rate of duty Remarks
(Rs.)
Upto 100 Lakhs Nil Not to avail Cenvat
100-300 Lakhs Normal rate of duty Can avail Cenvat

10.  MSME Scheme (with CENVAT)
Rate of duty in respect of Clearances of Specified
goods
Value of Clearance Rate of duty Remarks
(Rs.)
Upto 100 Lakhs 60% of normal rate Cenvat credit is of duty
available from the
beginning itself
100-300 Lakhs Normal rate of duty Can avail Cenvat

11. I. Exercise the option in writing under this
notification before effecting the first clearances and
such option shall be effective from the date of
exercise of the option and shall not be withdrawn
during the remaining part of the financial year.
II. The aggregate value of clearances of all excisable
goods for home consumption does not exceed
preceding financial year Rs.300 lakhs.

12. III. While exercising the option under condition (i), the
manufacturer shall inform in writing to the jurisdiction Deputy
Commissioner or assistant Commissioner of Central Excise
with a copy of the Superintendent of Central Excise giving the
following particulars, namely:-
◦ name and address of the manufacturer;
◦ location/locations of factory/factories;
◦ description of specified goods produced;
◦ date from which option under this notification has been
exercised;
◦ aggregate value of clearances of specified goods (excluding the
value of clearances referred to in para 3 of this notification) till
the date of exercising the option.

13.  Specified goods produced without the aid of power. All capital
goods, intermediate goods and inputs if captively consumed
within the factory of their production or used in the manufacture
of specified final products in the manufacturer or specified
goods.
 Specified goods if manufactured on job work basis/cleared for
job work/manufactured as a job work and used in the
manufacture of final products.
 Goods produced in a technical, educational and research institute
during the course of technical training or an academic or
vocational nature or carrying out experiments or research.
 Goods supplied to specified research institutions.

14.  Goods produced in Government Factories, Mines, Mints, prisons
Defence Production etc.
 Goods manufactured by specified units/Institutions for use by
Governmnet Departments or Defence purposes.
 Goods supplied for Defence or other specified purposes.
 Specified goods manufactured in a State Government factory and
intended for use in any of its department.
 Duty in excess of 10% is exempted on goods for supply to Gas
Authority of India Limited, Oil and Natural Gas Corporation
Ltd., or the Oil India Limited.
 Certain specified goods connected with solar and natural energy.

15.  Improved Chulhas (including smokeless Chulhas) capable of
burning wood, agro-waste, cow-dung, briquettes and coal.
 Goods manufactured by institution for handicapped persons.
 Good produced or manufactured in a Free Trade Zone.
 Specified goods used by units in Export Processing Zones/Free
Trade Zones.
 Goods brought to any gem and jewellery manufacturing units set
up in Santa Cruz Electronics Export Processing Zone (SEEPZ).
 Goods produced in 100% Export Oriented undertakings but not
sold within India.

16. IIA has following proposal for income tax in the budget:
(a) the rate of depreciation on plant and machinery for MSME
sector should be enhanced to 50% from 15% at present as an
incentive for investment in new plant and machines.
(b) the income tax rate for manufacturing enterprises in MSME
sector to be reduced to 20% from 30% at present.
(c) System of reprimand for wrong assessments.
(d) Surveys U/S 133 A
(e) Filing Income Tax returns for loss
(f) Rationalizing the disallowance of cash payment U/S 40 - A(3)
(g) Online tax payment system
(h) Advance Tax

17. a) T.C.S. @ 1.133%
b) Compulsory Audit
c) Section 269-SS and 269 T
d) Section 50-C- Valuation of assets
e) Section 40-A(2)(b) regarding salary payments

18.  Suggestions for Direct Taxes
 Accelerated depreciation be allowed to MSMEs on the purchase of
production machines and R&D equipment to give fillip to technological
up-gradation and scaling up and adopting green processes.
 Profit ploughed by the Small Scale and Micro Industries into business
could also be exempted from levy of Income Tax.
 Graded Taxation for companies and LLPs: To encourage SMEs to move to
Co. format, slab wise taxes in line with individuals and proprietorship
firms will help.

19.  Suggestions for Indirect Taxes:
 Refund of Central Excise Duty
 Interest on Central Excise Duty (CED) on supplementary
Invoices

20.  MSMEs should be allowed some exemptions which will lower
their tax burden and also will help to boost up its surplus
funds.
 Lower tax rate should be introduced for MSMEs.
 Special Deductions should be introduced so that any person
making any investment in MSME should be allowed
deduction equal or more than the value of investment. By
implementing this strategy Government can accumulate
capital for this sector without any additional investment from
its side.

21.  Excise duty should have to be lowered for MSME
products.
 Some of the goods produced by the MSME sectors
should have to be kept out of the purview of sales
tax/vat.
 As GST will replace all the indirect taxes, rules
regarding the same have to be made in such a manner
so as to provide an advantage to MSMEs.

22. Thanking You