For promoting entrepreneurship, the government provides special benefits to small businesses in the form of subsidies and incentives. Also, banks give loans at concessional rates to set up these businesses. For availing those, the small businesses need to register under the Micro, Small and Medium Enterprises (MSMEs) act.
If a business is registered under the MSMEs act, it can avail several benefits like cheaper bank loans, tax benefits, preference during the tender process, and access to various schemes and incentives of the government.
The old MSME classification was based on the criteria of investment in plant and machinery or equipment. So, to enjoy the MSME benefits, the MSMEs had to limit their investment to a lower limit, as mentioned below:
Sector | Criteria | Micro | Small | Medium |
Manufacturing | Investment | < Rs.25 lakh | < Rs.5 crore | < Rs.10 crore |
Services | Investment | < Rs.10 lakh | < Rs.2 crore | < Rs.5 crore |
These lower limits were killing the urge to grow as they were unable to scale their businesses further. Also, there was a long-pending demand for the revision of MSME classification so that they can further expand their operations while continuing to avail the MSME benefits.
Thus, under the Aatmanirbhar Bharat Abhiyan (ABA), the government revised the MSME classification by inserting composite criteria of both investment and annual turnover. Also, the distinction between the manufacturing and the services sectors under the MSME definition was removed. This removal created parity between the sectors.
The following is the revised MSME classification, where the investment and annual turnover, both are to be considered for deciding an MSME:
Criteria | Micro | Small | Medium* |
Investment & Annual Turnover | < Rs.1 crore & < Rs.5 crore | < Rs.10 crore & < Rs.50 crore | < Rs.50 crore & < Rs.250 crore |
Aadhar number is compulsory for registering under the MSME act. Any enterprise that qualifies under the definition of MSME can obtain Udaym Registration under the MSME Act. An application is to be filed online using Udyam Registration Portal for obtaining Udyam.
Udyam Registration is a completely online registration process and once the form is filled and submitted on the Udyam Registration portal, the registration certificate will be issued after a few days. The Udyam Registration has lifetime validity unless cancelled.
The Udyam registration process is entirely online and does not require the uploading of any documents. However, before applying for Udyam Registration, the proprietor or owner of the enterprise is required to have the following documents:
Note: Having GSTIN is not compulsory for enterprises that do not require a GST registration under the GST law. Such enterprises can register under MSME without having a GST registration. However, the enterprises that need to compulsorily obtain GST registration under the GST regime must have GST registration for obtaining MSME/Udyam Registration.
The above documents need not be uploaded but the Aadhar and PAN number of the entrepreneur is required to be entered in the registration form.