Last year, the Indian government implemented a few measures as part of the Aatmanirbhar Bharat stimulus package. The classification of MSMEs was revised as part of these changes.
As per the MSME Act 2006, MSMEs were classified according to the amount of capital invested in plant and machinery. Micro enterprises were described as manufacturing businesses with an investment of less than Rs. 25 lakhs and service enterprises with an investment of less than Rs. 10 lakhs. Similarly, the investment limit for small-scale manufacturing businesses was set at Rs. 5 crores, while the limit for service businesses was set at Rs. 2 crores. Any enterprises with investments above this threshold will be classified as medium-sized businesses.
According to the revised Act, the classification of MSMEs will now be based on their annual turnover. The Government has approved the revised definition of MSMEs in the country. The MSME sector will now be classified based on turnover as well as plant and machinery valuation.
Here is the classification of MSMEs as per the MSME Act 2020:
- Micro units – Investments up to Rs. 1 crore, and turnover of less than 5 crores.
- Small unit – Investment up to Rs. 10 crores, and turnover of less than Rs. 50 crores.
- Medium unit– Investments up to Rs. 50 crores, and turnover of less than Rs. 250 crores.
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What are the benefits of the new classification of MSMEs?
The new definition is important for all MSMEs because it has tremendous advantages. These include:
- MSMEs will get loans under the priority sector lending scheme.
- 25% share of government and government-owned companies' procurement.
- Promoters are being permitted to bid for troubled assets under insolvency law (unlike large companies).
- Occasional relief from the government and regulators.
- You do not need to register for GST if your company has an annual turnover of less than Rs. 40 lakhs.
- The Government has extended the ISO MSME reimbursement scheme to improve the MSME sector and provide better financial assistance.
Previously, the amount of money that could be invested could not exceed Rs 10 crores. Now, enterprises will have more resources to modernise their facilities, which will help them succeed internationally, thanks to the revised expenditure classification of Rs 50 crores. This provision also exempts exports from the calculation of turnover, allowing MSMEs to expand their exports without the fear of losing their MSME status.
In 2017 the Government of India had removed retailers and wholesalers from the MSMEs category. But as of July 2nd 2021, the Ministry of MSME has issued a memorandum to include retail and wholesale trade back into the MSMEs. This will enable the sectors to access priority sector lending, register on Udhyam Registration Portal, ECLGS scheme expansion and many various benefits offered by the Government of India
Given the latest classification of MSMEs and the advantages that come with it, you should also be aware that when it comes to SME loans, MSMEs receive a slew of benefits from the government, banks, and financial institutions. You can always develop your business with the aid of an SME loan, no matter what type of MSME your business is.
At Kinara Capital, we provide loans upto Rs. 30 lakhs to MSMEs engaged in the manufacturing, trading and service sector. We have a team of professionals to assist you in your regional language. Our time saving financial technology has helped many MSMEs get loans within one day, and it can benefit you too.
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