You may well be aware that MSMEs form the backbone of industrial growth in any country. These MSMEs are the primary source of employment generation and function as key supporters of various big industrial houses and organizations.
This segment, playing a crucial role in economic development, is responsible for over 80% of businesses and partakes in more than half of the employee share. The contribution of the formal MSME sector to the GDP is almost 40% in upcoming economies. With the existence of over 63 million MSMEs staffing over 110 million people spread across services, the manufacturing sector accounts for nearly 30% of the GDP. The formidable target of a $ 5 billion economy forming a 25% share of the manufacturing sector will need the MSME sector to play a key role.
These MSMEs are distributed across India, and most of them are in Maharashtra. The Government has launched various schemes to foster their development and ease of doing business for these MSMEs.
The Micro, Small and Medium Enterprises (MSME) Act has witnessed various changes, including a review of the classification criteria, modifications to the GST return system, and the latest payment rules.
Classification Criteria
The Union Budget 2025 raised investment limits by 2.5 times and two times turnover limits. The latest classification relies on a mix of turnover limits and investment instead of merely investment. This change is aimed at aiding MSMEs to upscale, access capital, and boost efficiency.
GST Return System
The latest GST return system permits small taxpayers to submit returns quarterly. Big taxpayers must file monthly returns.
Payment Regulations
Commencing April 1, 2024, all assesses must formulate a record of all their payables and vendors as of March 31, 2024. This will aid them in recognizing due payments that may be refused as expenses.
Other Modifications
The MSME Act has also witnessed other modifications, including the inauguration of the Yashasvini Campaign to back women-owned entities. The government has also been tasked to enhance MSMEs’ access to markets, credit, and technology.
Let us break it down and tell you what is altering, why it is relevant, and how MSMEs can transform these reforms into genuine opportunities.
Key Features of the Amended MSME Act
- Revised MSME Categorization: The government has doubled turnover thresholds and raised investment limits by 2.5 tunes, enabling more businesses to be eligible as MSMEs. This will permit more companies to benefit from MSME schemes and allow smoother transitions for developing micro, small, and medium enterprises.
- Enlarged Credit Assurance for MSMEs: The Credit Guarantee cover has been raised to Rs. 10 crore, freeing Rs. 1.5 lakh crore in extra funding for businesses during the next 5 years. Customized credit cards for micro-enterprises with a Rs. 5 lakh restriction will enhance access to working capital for small-scale businesses.
- Business-friendly Initiatives: A dedicated high-level committee will simplify compliance processes; minimize regulatory burdens; and develop trust-embedded governance with a more conducive environment for MSMEs.
- Government-Upholded Support for Startups: The Rs. 10,000 crore Fund of Funds will provide extra funding avenues for startups and invention-driven MSMEs, promoting their global scalability and competitiveness.
- Emboldening Women Entrepreneurs: Specific initiatives for 5 lakh initial women entrepreneurs from Scheduled Castes and Scheduled Tribes contain up to Rs. 2 crore in term loans, together with online instruction, facilitating gender inclusivity in business.
Latest MSME Classification Criteria for MSMEs
Does your business seem too large to be regarded as a micro-enterprise but not sufficiently big to rival big companies? The Indian government has upgraded the criteria for micro, small, and medium enterprises (MSMEs) to aid businesses in flourishing more smoothly.
According to the new criteria for MSMEs, the investment limit for MSME categorization will be increased 2.5 times, while the turnover ceiling will be doubled.
The table below summarizes the alteration in criteria according to the latest definition of MSME.
| Enterprise Type | Old Turnover Limit | New Turnover Limit | Old Investment Limit | New Investment Limit |
| Micro | Rs. 5 Crore | Rs. 10 Crore | Rs. 1 Crore | Rs. 2.5 Crore |
| Small | Rs. 50 Crore | Rs. 100 Crore | Rs. 10 Crore | Rs. 25 Crore |
| Medium | Rs. 250 Crore | Rs. 500 Crore | Rs. 50 Crore | Rs. 125 Crore |
These modifications will generate a more comprehensive growth environment where businesses can transition smoothly without supervisory hurdles.
MSME Latest Definition vs MSME Old Definition
The latest MSME definition became effective on July 1, 2020. It depends on entities’ annual turnovers and their investment in machinery, plants, and other equipment. The reviewed limits of these parameters have substantially affected the MSME sector as the number of enterprises now qualifying for MSME enrolment has soared. Businesses can avail themselves of multiple benefits provided by the Government and boost their overall growth potential. The following table matches the new MSME definition with the older one to emphasize the importance of the revised limits.
| Old Definition of MSME | New Definition of MSME
|
| Separate threshold limits for service and manufacturing sectors | Uniform threshold limits for service and manufacturing sectors |
| Excluded wholesale and retail sectors | Accommodate wholesale and retail sectors |
| Threshold limits not adapted for inflation | Threshold limits adapted for inflation |
| Cost of equipment not adapted for depreciation | Cost of equipment adapted for depreciation |
| Depreciated cost estimated according to commercial rates | Depreciated cost compounded according to IT rules |
| Upward limits of investments and turnovers were extremely low | Upward limits of investments and turnovers have been lifted |
| Export turnover contained in total turnover | Export turnover removed from total turnover |
The Cabinet Committee on Economic Affairs (CCEA), led by Prime Minister Narendra Modi, on June 26, 2020, accepted an upward review of the MSME definition. The amendment has eliminated the bifurcation of investment limits for the Service and Manufacturing industries. The revisions were conducted 14 years after the coming into existence of the MSME Development Act in 2006.
Here is a brief recap of the amendments:
The registration procedure under the MSME sector has been done online in the Udyam Registration website. It rests on self-declaration, and there is no need to upload any proofs or documents. The enterprise will get an e-certificate “Udyam Registration Certificate” and will be allotted a permanent identity number “Udyam Registration Number”.
Key Features
- Fees are not needed for registration.
- Adhaar Number is compulsory for Udyam Registration.
- Any number of tasks, including service or manufacturing or both, may be cited or added to one Udyam Registration.
Entities with Udyam Registration Number should update the particulars of GST and ITR Return for the past year on the portal. Based on the information furnished, the entity’s classification will be updated, and communication will be dispatched to the enterprises about the status change.
Measures promulgated by the Government of India for MSME under Atmanirbhar Bharat Movement:
- Rs. 3 lakh crore security-free instant loans with a tenure of 4 years and a moratorium of 12 months (MSME with till Rs. 25 crore due or Rs. 100 crore turnover are qualified) present till 31st October 2020 to restore business activity and protect the jobs.
- Rs. 20,000 crore subordinate debt for working MSMEs which are Promoters/NPAs of the MSME will be provided debt by banks, which will then be added by the promoter as equity in the Unit.
- Rs. 50,000 crore equity insertion (a fund of funds having a corpus of Rs.10,000 crore will be established). FoF will run through a Mother Fund and some daughter funds.
- The FoF scheme intends to purchase up to 15% equity in MSMEs with a superior credit rating. The finance ministry accepted the scheme in April, subject to Cabinet approval.
- Global tenders will be refused in government acquisitions up to Rs. 200 crore for MSME participation to ensure fair treatment of MSME.
- MSME receivables from CPSEs and the government will be discharged in 45 days.
- Extra measures – e-market connection for MSMEs to be encouraged to work as a substitute for exhibitions and trade fairs.
Wrapping Up
The MSME’s latest definition was initially announced when the pandemic struck and ruined the whole economy of India. While the comparatively more significant businesses somehow managed to negotiate the hard times, it was the micro, small, and medium enterprises that entirely plummeted in financial terms. Many small businesses had to wind up due to an absence of investment, income, sales, and profits. Post-pandemic, these businesses were in acute need of backing from private investors and the government. Consequently, the reforms in the MSME segment, expected a considerable time ago, were among the initial changes that were made instantly following the pandemic. The move for reforms was also crucial for the restoration of the wellness of the national economy, as it is the MSME segment that duly fuels the GDP growth in India.
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