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New MSME Classification | Finserv MARKETS

What is the New MSME Classification? All you need to know about it

25 Oct 2021
75 Views

MSMEs are an integral part of our economy. The Indian government offers a myriad of benefits to MSMEs, so they can function seamlessly in the Indian as well as global market. These benefits can only be availed by businesses that fall under the MSME category. In fact, our government has introduced a new MSME classification to provide them with better opportunities.

Before the new classification was introduced, most MSMEs were sceptical about growing in terms of numbers. As per the old definition, scaling would result in losing the title. Thus, the industry was waiting for the government to change the classification of MSME. Let's dive into understanding the new MSME classification in detail.

What is the Meaning of MSME?

The MSME full form is Micro, Small and Medium Enterprises, which are governed by the Micro, Small, and Medium Enterprises Development Act, 2006. According to this act, MSMEs are businesses that focus on the processing, production, and preservation of goods and commodities.

Features of MSME

Let's explore the features of MSMEs:

  • MSMEs offer assistance for improved access to the domestic and export markets for businesses

  • MSMEs encourage product development, design innovation, intervention, and packaging elements of a business

  • MSMEs focus on upgrading technology and infrastructure of this sector

  • MSMEs offer employment opportunities and loans

  • MSMEs offer credit limit or funding support to various banks in the country

What is the New MSME Classification Proposed by the Government?

According to the new MSME classification, businesses classify as micro, small, or medium enterprises if they satisfy the following criteria.

Type of Enterprise

Investment in and Turnover

Limit

Micro

Investment in plant and machinery or equipment

Does no exceed ₹1 crore

Turnover

Does not exceed ₹5 crore

Small

Investment in plant and machinery or equipment

Does not exceed ₹10 crore

Turnover

Does not exceed ₹50 crore

Medium

Investment in plant and machinery or equipment

Does not exceed ₹50 crore

Turnover

Does not exceed ₹250 crore

As per the old classification of MSME, there were two categories- manufacturing and service enterprises. These two businesses were defined based on their investments, however, the new MSME definition also includes turnover. Now, all MSMEs will be classified under a standard yardstick, i.e. a mix of investment in plants and machinery, or equipment and turnover.

Calculating Investment in Plant and Machinery or Equipment

The assessee must attach the calculation of their investment in p/m or equipment to the income tax return filed for the previous year. If the enterprise is new (and no ITR has been filed yet), the investment will be accounted for according to self-declaration from the business’s promoter. However, note that this relaxation will end after 31 March of the financial year in which the business files its first ITR. Irrespective of whether you buy a first-hand or second-hand machine, the purchase value of P/M or Equipment will be taken into account without the GST.

FAQs

  • ✔️What is MSME and its classification?

     MSMEs are micro, small, and medium enterprises that are defined on the basis of two critical factors:

     

    • Investment in plant and machinery or equipment

    • Turnover of the business

     

  • ✔️Which type of business comes under MSME?

     MSME only covers manufacturing and service enterprises industries.


        

  • ✔️Why is MSME important?

     MSMEs offer better job opportunities, which is a boon to the young and fresh talent of India. By fostering innovation and increasing employment and global business opportunities, these businesses are the significant drivers of the Indian economy.

  • ✔️When did the new MSME classification come into effect?

     The latest classification of MSME came into effect from July 1, 2020.