This article has been written by Kashish Sethi, from Delhi Institute of Rural Development, GGSIPU.
Table of Contents
Introduction
India is facing the biggest fall in GDP of the time due to coronavirus pandemic. Gross Domestic Product, abbreviated as GDP, is calculated as how much value of goods and services are produced in a country in a particular quarter or in a year. The Indian government have started a campaign ‘Aatmanirbhar Bharat’ i.e. Self-reliant India initiative to give a boost to MSME sectors to ensure that this sector will help in leading the country towards economic growth as it is the considered as the second-largest sector which provides the largest employer in India.
Micro, small and medium enterprises (MSMEs) are seen as the future of the nation as they are the growth accelerators of the economy, they are contributing about 30% of the country’s gross domestic product (GDP) and as per Nomura Research Institute (NRI) consulting & Solutions, MSME can play a vital role in achieving the vision and to achieve it a lot of more MSME needs to be established. To make MSME as a growth accelerator for India, government from time to time introducing many schemes to support this sector.
What are MSMEs and its benefits?
Definition of MSME and thereby existing criteria of classification on the basis of Investment in Plant & Machinery or Equipment was changed to Composite criteria of Investment & Turnover and it also eliminated the difference between Manufacturing & service Sector Enterprises.
According to Section 7 of the MSMED Act, 2006 as notified with the latest notification on New Delhi, that from 1st July 2020 Micro, small and medium enterprises (MSMEs) can be classified as:-
Micro enterprises
Those enterprises which have Investment of less than 1 crore and turnover less than 5 crores are to be considered as Micro enterprises
Small enterprises
Those enterprises which have Investment of less than 10 crores and turnover less than 50 crores are to be considered as Small enterprises
Medium enterprises
Those enterprises which have Investment of less than 50 crores and turnover less than 250 crores are to be considered as Medium enterprises.
Though earlier MSME’s were classified on the basis of manufacturing and service now it is on the basis of how much investment in Plant & machinery and how much their turn over is.
How to know which sector your business lies?
Any enterprise can apply for consideration under MSME act if the composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium.
Calculation of Investment in Plant and Machinery
- Investment in Plant and machinery can be calculated on the basis of previous year ITR as per income section 139 (4F) read with section 115UB (excluding land & building, furniture and fittings).
- Cost calculation of Investment in certain Items under Plant and Machinery are specified under the Explanation – I of Section 7(1)
- In case, of new enterprise where no ITR can be filed in the first year of business, the value of investment shall be taken on the basis of self-declaration until the end of that financial year.
- The Owner should show the invoice value of plant and machinery or equipment whether purchased first hand or second-hand value, excluding the GST (Goods and Services Tax), on self-disclosure basis.
- “Plant and Machinery or equipment” of the enterprise, shall have the same meaning as per Income Tax Rules,1962 framed under the Income Tax Act 1961 and shall include all tangible assets
Calculation of turnover
- For the purpose of classification of an enterprise in Micro, small and medium Enterprise turnover should be calculated while excluding the export of goods or services or both.
- Consideration of turnover = Turnover – export of goods and service
- PAN and GSTIN is a mandatory step while for the purpose of classification under MSME as all the information regarding the turnover and export turnover has to be linked with Income Tax Act or the Central Goods and Services Act (CGST).
- Turnover figures for the enterprises which have just begun and do not have pan will be considered on a self-declaration basis for the period up to 31st March 2021.
What If You Crossed the Ceiling Limit?
- If an enterprise crosses the ceiling limits as specified in the above category in either of two criteria of investment or turnover, in that case it will be placed in the next i.e. Higher Category but no enterprise shall be placed in the lower category unless it goes below the ceiling limit in any of the criteria.
- All units with Goods and Service 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 Registration under MSME:-
MSMEs seem like the important source for employment in India and it receives benefits from both the central Government and State Government from time to time. Generally these benefits are given to boost this sector. These benefits are:-
Along with these benefits, MSMEs are getting the benefits time to time by the government by new initiatives to support this sector even in the times of global pandemic government announced many schemes for MSMEs to bring back the economy in its normal position. These benefit schemes changed the scenario of MSME sector in India and helped in rapid growth. These Schemes are outlined below.
Access to credit
- Easy loan sanction by the bank to MSMEs up to 3 trillions
- Under 20% of the outstanding loan as an cut-off date of 28 February will be guaranteed by the government, and banks without any additional guarantees
- Moreover, any MSME may approach the relevant authorities on MSME Samadhaan Portal for settlement of its dues.
Subordinate debt scheme
- To enhance the liquidity of funding and maintain debt-equity ratio of the promoters’ government has come out with subordinate debt scheme
- It will extend support to the promoters by providing a debt facility of up to 15% of the promoter contribution or ’75 lakh, whichever is lower.
- This will help banks to fund the promoter’s contribution and guarantee by the government.
Funds of Fund
- Financial relief and funding with a corpus of 10,000 crore by announcing Funds of Fund Scheme for the growth of MSME sector.
- The initial stage fund will be managed by a ‘mother fund’ to raise further with the corpus amount 50,000 crore at levels of daughter funds.
Launch of CHAMPIONS portal
- Government has launched a new CHAMIPION PORTAL to help MSME in providing raw materials, labour, permissions, etc.
- It will bright this sector and help in achieving the aim of becoming national and international champions.
- This portal also helps as a grievance redressed cell for MSMEs.
Registration Process under MSME
- Any type of business entities irrespective of their business scale or type can opt for MSME registration or Udyam Aadhar though it is not mandatory registration and it’s a sole discretion of the business owner/ head of the business to apply for registration under MSME act. Though, it is recommended to obtain MSME/SSI/Udhyam Aadhar right after its registration to avail all the benefits under the MSME Act.
- Any person who intends to enrol and avail the benefits under micro, small or medium enterprise may apply on Udyam Registration portal, which is free of cost and based on self-declaration, with no separate documents paper, certificate or proof to be uploaded as per the latest notification issued by the MSME ministry.
- Earlier, MSME were registered with the help of Udyog Aadhar registration but after 1st July 2020 Udyog Registration and Udyog Aadhar are the same. Moreover, Udyog Aadhar Registration converts into the Udyam registration process.
- Udyam Registration has been fully based on the Income Tax and Good Sales Tax Systems. Though, old Businesses which have already enrolled with the MSME Act by using EM-II (entrepreneur’s memorandum) or Udyog Adhaar Memorandum or any other registration issued by MSME ministry have to re-register their business again under the Act.
STEP BY STEP PROCEDURE TO GET REGISTER:-
Points to Remember while you are Applying for MSME:-
- The form for registration is online without any additional documentation and can be done without any support from the agent or external body.
- While applying on Udyam Registration Portal no fee for filling will be charged at the time of Registration. You can access the portal on the official site
- In case of a company or a limited Liability Partnership or any cooperative Society or a Trust shall provide its GSTIN and PAN along with the Aadhar Number.
- In case, the owner of the enterprise does not have Aadhar, he/she can approach MSME-Development Institutes or District Industries Centres (Single Window Systems) with his Aadhaar enrolment identity slip or any Government ID as a proof and single windows systems will facilitate the process including getting an Aadhaar number and in the further process of Udyam Registration.
- In case any enterprise applying without a Pan Card can refer to the steps as mentioned on this link and if you are applying with a PAN card you can refer to this link.
- In case any enterprise is already registered as an Udyam with PAN, and want to add any information which was omitted or missed for previous years when it did not have PAN shall be filed upon self-declaration basis.
- No enterprise is allowed to have more than one Udyam Registration.
- Whoever intentionally misrepresents or attempts to supress the self-declared facts & figures will be punishable under section 27 of the MSMED Act.
- In case, of Proprietorship firm, Partnership firm, HUF or company Ltd. Aadhar card shall be required of proprietor, Managing Partner, Karta, Authorised Signatory respectfully.
Conclusion
MSMEs are the growing sector which is seen as a growth engine for the economy of the country and the government is providing everything which they can to enhance this sector. The new process classification which helps in advancing this sector and it will make it easier, quicker and simpler for the entrepreneurs to register themselves under this act and all the information will be linked under Income Tax Act and GST, which will help in keeping a check on reliability of information.
This move of the government is going to help both entrepreneurs and the Government. This process will be removing third parties or the agency to register which were exploiting the entrepreneurs at the time of registering and it will give a push to kick-start the economy in hard times of the country.
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