Revised Criteria and Definition of MSME

A revision in Micro Small and Medium Enterprises (MSME) definition was announced in the Atmnirbhar Bharat package on 13th May 2020. After the package was reported, several representations for upward revision of the MSME definition were made. Considering this, the Ministry of Micro, Small, and Medium Enterprises, vide its gazette notification dated 1^st June 2020, has announced the upward definition and criteria of the MSME. The new report and criterion for MSME will come into effect from 1st July 2020, and the existing Definition of MSME will be valid up to 30th June 2020.

Gist of Notification

The important announcement of the Ministry of MSME vides its gazette notification is as follows:

According to the notification, MSMEs are classified based on the composite criteria of investment in plant and machinery and turnover. The limit of the medium unit is revised upwards to Rs. 50 Crore of investment and Rs. 250 Crore turnover.
As part of the new definition of MSME, exports will not be counted in terms of turnover for any micro, small or medium enterprises.
The Government has introduced a new composite formula for the classification of MSME. Accordingly, the ministry has removed the difference between manufacturing-based MSMEs and service-based MSMEs.The existing definition criterion of MSME is based on the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, which was different for manufacturing and services units.
The other change introduced is that the sector's turnover will define an MSME. So far, MSMEs have been determined based on their scale of investments. The investments will not characterize an MSME, but the turnover will represent an MSME.

New Definition of MSME

The recent changes in the definition of micro, small, and medium-sized enterprises (MSME) were made as a part of the Atmanirbhar Bharat Abhiyaan relief package. The investment and turnover figures have been changed to more significant values, as indicated below. MSMEs are defined based on the investment criteria in plant and machinery and turnover.

Composite Criteria: Investment in Plant / Machinery
Sl.No	Type of Enterprises	Investment in Plant and Machinery or Equipment	Turnover
1	Micro enterprises	Less than Rs.1 Crore	Less than Rs.5 Crore
2	Small enterprises	Less than Rs.10 Crore	Less than Rs.50 Crore
3	Medium enterprises	Less than Rs.50 Crore	Less than Rs.250 Crore

Reason for Revised Criteria for Classification of MSME

The reason for the revised definition and criteria of the MSME is to strengthen the MSME and grow.
Notably, excluding the exports from the counting of turnover is to encourage the MSMEs to export more and more without fearing losing the benefits of an MSME unit.
By encouraging exports from India, the Government is planning to enhance growth and economic activity and the creation of jobs.

Revised MSME definition - The Atmnirbhar Bharat package

After 14 years since the MSME Development Act, a revision in the MSME definition was announced in the Atmnirbhar Bharat package on 13.05.2020 to bring more units under the purview of the schemes announced. According to this package, the composite criteria for the definition of MSME are investment and turnover. The distinction between the service and the manufacturing sector has also been eliminated.

The limit of the Micro units (both manufacturing and services) were increased to Rs. 1 Crore investment and Rs. 5 Crore turnover.
Similarly, the limits of the small unit also increased to Rs. 10 Crore of investment and Rs 50 Crore of turnover.
The limits of the medium enterprises were increased to Rs. 20 Crore of investment and Rs. 100 Crore turnover.

For a better understanding, go through the table attached here:

Composite Criteria: Investment in Plant / Machinery and Turnover
Sl.No	Type of Enterprises	Investment	Turnover
1	Micro enterprises	Less than Rs.1 Crore	Less than Rs.5 Crore
2	Small enterprises	Less than Rs.10 Crore	Less than Rs.50 Crore
3	Medium enterprises	Less than Rs.20 Crore	Less than Rs.100 Crore

Know more about the Highlights of the Atmanirbhar Bharat Abhiyaan Economic Package

The old definition of MSME - MSMED Act, 2006

The existing definition criterion of the Ministry of Micro, Small, and Medium Enterprises is based on the Micro, Small, and Medium Enterprises Development (MSMED) Act. The act came into existence in 2006. The MSMEs are classified based on the investment in plant and machinery, and it was different for manufacturing and services units. Following the MSMED Act, 2006, the Micro Small and Medium Enterprises (MSME) enterprises are classified into the following two types.

Manufacturing enterprises – The enterprises which engaged in the manufacturing or production of goods are known as manufacturing enterprises
Service enterprises – The units which engaged in providing or rendering services are stated as service enterprises

Composite Criteria: Investment in Plant and Machinery
Sl.No	Type of Enterprises	Manufacturing enterprises	Service enterprises
1	Micro enterprises	Less than or Equal to Rs.25 Lakhs	Less than or Equal to Rs.10 Lakhs
2	Small enterprises	Rs.25 lakhs to Rs.5 Crore	Rs.10 lakhs to Rs.2 Crore
3	Medium enterprises	Rs.5 Crore to Rs.10 Crore	Rs.2 Crore to Rs.5 Crore

Any person who intends to establish an MSME must file Udyam Registration online in the Udyam Registration portal. For more details on MSME – Udyam Registration, click here

The Government allows MSMEs to avail of non-tax benefits for three years post-reclassification - Notification dated 19/10/22

The Government announced that Micro, small and medium enterprises would continue to avail of all non-tax benefits in their respective categories post-re-classification for three years. The ministry of MSME has notified that In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent reclassification, an enterprise shall continue to avail of all non-tax benefits of the category it was in before the reclassification, for three years from the date of the upward change. This decision has been taken after deliberations with MSME stakeholders and is in line with the Aatma Nirbhar Bharat Abhiyan. Non-tax benefits include benefits of various government schemes, including public procurement policy, delayed payments,

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