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MSME Definition: MSME Meaning & Latest Classification with Turnover Limit

By Admin, 3/7/2024 9:17:14 AM

The full form of MSME is Micro, Small, and Medium Enterprises. Defined under the Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006, MSMEs include businesses classified as micro, small, or medium enterprises.

In 2020, the Government of India updated MSME classifications and MSME Criteria based on investment and MSME turnover limits. This revised structure supports micro, small, and medium enterprises, allowing more businesses to access tailored benefits and incentives.

After 14 years since the MSME Development Act came into existence in 2006, a revision in MSME definition was announced in the Atmnirbhar Bharat package on 13th May, 2020. As per this announcement, the definition of Micro manufacturing and services units was increased to Rs. 1 Crore of investment and Rs. 5 Crore of turnover. The limit of small unit was increased to Rs. 10 Crore of investment and Rs 50 Crore of turnover. Similarly, the limit of medium unit was increased to Rs. 20 Crore of investment and Rs. 100 Crore of turnover. The Government of India on 01.06.2020 decided for further upward revision of the MSME Definition. For medium Enterprises, now it will be Rs. 50 Crore of investment and Rs. 250 Crore of turnover.

The existing criterion of definition of MSMEs is based on the MSMED Act, 2006. It was different for manufacturing and services units. It was also very low in terms of financial limits. Since then, the economy has undergone significant changes. After the package announced on 13th May, 2020, there were several representations saying that the announced revision is still not in line with market and price conditions and hence it should be further revised upwardly. Keeping in mind these representations, Prime Minister decided to further increase the limit for medium Units. This has been done in order to be realistic with time and to establish an objective system of classification and to provide ease of doing business.

Also, a new composite formula of classification for manufacturing and service units has been notified. Now, there will be no difference between manufacturing and service sectors. Also, a new criterion of turnover is added.

Ministry officials said that the new definition will pave way for strengthening and growth of the MSMEs. Particularly, the provision of excluding the exports from counting of turnover will encourage the MSMEs to export more and more without fearing to loose the benefits of a MSME unit. This is expected to exponentially add to exports from the country leading to more growth and economic activity and creation of jobs.

Old Definition of MSME	New Definition of MSME
Different threshold limits for manufacturing and service sectors	Uniform threshold limits for manufacturing and service sectors
Excluded retail and wholesale sectors	Includes retail and wholesale sectors
Threshold limits not adjusted for inflation	Threshold limits adjusted for inflation
Cost of equipment not adjusted for depreciation	Cost of equipment adjusted for depreciation
Depreciated cost calculated as per commercial rates	Depreciated cost calculated as per IT rules
Upward limits of turnovers and investments were too low	Upward limits of turnovers and investments have been raised
Export turnover included in total turnover	Export turnover excluded from total turnover

New MSME classification:

Sr. No	Type of Enterprise	Investment	Turnover
1.	Micro Enterprise	Not more than Rs.1 Crore	Not more than Rs.5 Crore
2.	Small Enterprise	Not more than Rs.10 Crore	Not more than Rs.50 Crore
3.	Medium Enterprise	Not more than Rs.50 Crore	Not more than Rs.250 Crore

What is an MSME Certificate?

An MSME Certificate is an official document issued by the Government of India to certify that a business qualifies as a Micro, Small, or Medium Enterprise (MSME). This certification, often acquired through the Udyam Registration portal, grants businesses recognition under the MSME Development (MSMED) Act, 2006. The certificate helps MSMEs access various government benefits, such as subsidies, lower interest rates on loans, tax exemptions, and access to government tenders specifically reserved for small businesses.

MSME Registration Fees in India

The MSME Registration process, a pivotal step for businesses to access government support, is currently fee-free on the Udyam Registration Portal. This significant change eliminates financial barriers, encouraging more businesses to formalize their MSME status without incurring any registration fees. It ensures inclusivity and accessibility for enterprises, aligning with the government’s pro-growth initiatives.