For promoting entrepreneurship, the government provides special benefits to the 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 Micro, Small and Medium Enterprises (MSMEs) act.
If a business is registered under 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 government.
What are MSME Enterprises?
The existing MSME classification was based on the criteria of investment in plant and machinery or equipment. So, to enjoy the MSME benefits, the MSMEs have to limit their investment to a lower limit, as mentioned below:
|Existing MSME Classification|
|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 are killing the urge to grow as they are unable to scale their businesses further. Also, there has been 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.
Now, 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 has been removed. This removal will create 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.
|Revised MSME Classification|
|< Rs.1 crore
< Rs.5 crore
|< Rs.10 crore
< Rs.50 crore
|< Rs.50 crore
< Rs.250 crore
* Further upward revision made by the government
Aadhar number is now compulsory for registering under MSME act. An application is to be filed online using Udyog Aadhar Registration, and this can be verified using e-Aadhar OTP.
Provisional registration is given in the initial five years if an entity hasn’t started its business yet. During this period, it can obtain loans from banks, and apply for various NOCs from regulatory bodies. Once the entity commences its operations, it can apply for a permanent license which has a lifetime validity, unless canceled.
The entity has to submit business address proof, copies of purchase and sale bill, and licenses from regulatory bodies.
a. Business Address Proof
If the premise is self-owned– Allotment letter, possession letter, lease deed or property tax receipt. If there is a municipal license in the business name or in the name of the proprietor, partner or director of the business, no other possession document is required to be submitted.
If the premise is rented– Rent receipt and a no objection certificate from the landlord is required. Also, any utility bill or document evidencing the landlord’s ownership is to be submitted.
b. Copies of Sale Bill and Purchase Bill
Business is required to submit copy of sale bill related to each end product that it will supply. Also, for each raw material that it will purchase, a purchase bill has to be submitted.
c. Partnership Deed/ MoA and AoA
If the business is a partnership firm, it has to submit its partnership deed. If the partnership firm is registered, it has to submit registration certificate also.
In case of a company, copy of Memorandum of Association and Articles of Association, and certificate of incorporation has to be submitted. With it, copy of the resolution passed in general meeting, and a copy of board resolution authorizing a director to sign the MSME application is also to be submitted.
d. Copy of Licenses and Bills of Machinery Purchased
In few cases, the applicant has to submit a copy of industrial license which is to be obtained by giving an application to Govt. of India. Further, all bills and receipts related to purchase and installation of plant and machinery have to be kept safe and required to be submitted on demand.