The Cabinet Committee on Economic Affairs (CCEA) under Prime Minister Narendra Modi on 26 June 2020 approved an upward revision of the MSME definition. The amendment has removed the bifurcation of investment limits for the Manufacturing and Service industry. The revisions were made 14 years after the MSME Development Act came into existence in 2006. We have tried to capture the amendments in brief below-
What has changed?
The definition has been revised to eliminate the fear of growth, it will give a chance for MSMEs to grow with higher threshold limits. The investment size criteria for each category – micro, small, and medium – have been hiked to bring more companies under the definition of MSME.
The registration process under the MSME sector has been made online in the Udyam Registration portal. It is based on self-declaration and there is no requirement to upload any documents or proofs. The enterprise will receive an e-certificate “Udyam Registration Certificate” and will be assigned a permanent identity number “Udyam Registration Number”.
- There will be no fees for registration.
- Adhaar Number is mandatory for Udyam Registration.
- Any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration.
What is the advantage to register as MSME?
- Exclusive rights to manufacture certain products
- Reserved the purchase of more than 300 products exclusively from this sector (wooden furniture and fixtures, pickles, bangles, groundnut oil, mustard oil, bread, jute, brakes, and clutches for automobile corporations, etc)
- Micro & Small can avail upto Rs 50 lakh collateral-free loan
- Capital aid for technological updation scheme
How can an enterprise calculate the investment in Plant and Machinery or equipment?
The calculation of investment in plant and machinery for checking the limits will be linked to the Income Tax Return of the previous years. In case of a new enterprise, where no ITR has been filed, the calculation will be based on the self-declaration of the promoter of the enterprise.
How can an enterprise calculate the Turnover?
For the calculation of turnover for checking the limits, the information will be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN. Further, Exports of goods or services should be excluded while calculating the turnover for the purpose of classification.
What is the criterion to re-classify enterprise in the higher category or lower category?
Based on the composite criteria of investment and turnover, once an entity crosses either of the limits as mentioned above, it ceases to exist in that category and will be placed in the next higher category. However, only when the entity goes below both the investment and turnover limits of its present category, will it be placed in the lower category.
Enterprises with Udyam Registration Number should update the details of ITR and GST Return for the previous year on the portal. Based on the information provided, the classification of the enterprise will be updated and communication will be sent to the enterprises about change in status.
Are the existing MSME required to re-register under the new Udyam Registration portal?
Yes, all existing enterprises registered under UAM shall register again on the Udyam Registration portal on or after the 01st July 2020.
Will the enterprises registered till 30th June 2020 as per the previous definition be re-classified as per the new definition?
All enterprises registered till 30th June 2020, shall be re-classified in accordance with this notification.
Measures announced by Government of India for MSME under Atmanirbhar Bharat Movement
- Rs 3 lakh crore collateral-free automatic loans with a tenure of 4 years and a moratorium of 12 months (MSME with upto Rs 25 crore outstanding OR Rs 100 crore turnover are eligible) available till 31st October 2020 to resume business activity and safeguard the jobs
- Rs 20,000 crore subordinate debt for functioning MSMEs which are NPAs/ Promoters of the MSME will be given debt by banks, which will then be infused by the promoter as equity in the Unit.
- Rs 50,000 crore equity infusion (a fund of funds with a corpus of Rs 10,000 crore will be set up). FoF will be operated through a Mother Fund and few daughter funds.
The FoF scheme proposes to buy up to 15 percent equity in MSMEs, with a high credit rating. The scheme was approved by the finance ministry in April, pending Cabinet approval.
- Global tenders to be disallowed in government procurement upto Rs 200 crore so that MSME can participate and there is no unfair treatment towards MSME
- MSME receivables from government and CPSEs will be released in 45 days
- Additional measures-
e-market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.
Fintech will be used to enhance transaction-based lending using the data generated by the e-marketplace.