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The Ministry of Micro, Small and Medium Enterprises (MSME Ministry) vide its notification dated June 26, 2020 (Notification) superseded its earlier notifications dated June 01, 2020; June 30, 2017; November 01, 2013 and October 05, 2006 and notified the composite criteria of investment and turnover for classification of the enterprises into micro, small and medium category and the procedure to apply for Udyam Registration, with effect from July 01, 2020.
Thresholds for MSME Classification The thresholds for classifying an enterprise into micro, small and medium category are as under:
t is noteworthy to mention that the new MSME Classification covers only the manufacturing and service enterprises and excludes the trading enterprises from its purview.
Udyam Registration of Existing Enterprises and New Enterprises The enterprises falling under the micro, small and medium category would be required to obtain an Udyam Registration Number (URN) by registering itself on Udyam Registration Portal. No enterprise should obtain more than one URN, however, it can mention any number of activities including manufacturing or service or both in one URN.
All existing enterprises registered under Entrepreneur Memorandum-Part-II or Udyog Aadhaar Memorandum needs to register again on Udyam Registration Portal on or after July 01, 2020. It is important to note that all enterprises registered till June 30, 2020 would be re-classified in accordance with this Notification. Further, the registrations obtained by the existing enterprises prior to June 30, 2020 would continue to be valid until March 31, 2021.
Linking of MSME Classification with ITR and GSTIN The MSME Ministry has clarified that the new MSME classification would be linked with Income Tax Return (ITR) and the Goods and Services Tax Identification Number (GSTIN).
The Notification provides that the expression “plant and machinery or equipment” of an enterprise, would have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 (IT Act) and would include all tangible assets (other than land and building, furniture and fittings). Further, it also states that the calculation of investment in plant and machinery or equipment would be linked to the ITR of the previous years filed under the IT Act and in case of a new enterprise, where no prior ITR is available, the investment would be based on self-declaration of the promoter of the enterprise and such relaxation would end after March 31 of the financial year in which it files its first ITR.
Further, the Notification also clarified that the export of goods or services or both, would be excluded while calculating the turnover of any enterprise, for the purpose of classification of an enterprise into micro, small or medium category. It is also provided that the information with regards to turnover and export turnover of an enterprise would be linked to the IT Act or the Central Goods and Services Act, 2017 and the GSTIN.
All the enterprises having GSTIN listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all such enterprises would be seen together and the aggregate values would be considered for determining the applicable category.
Updation of information and transition period in classification An enterprise having URN needs to update its information every year on Udyam Registration Portal, including the details of the ITR and the GST Return for the previous financial year and such other additional information as may be required, on self-declaration basis. It is important to note that failure to update the relevant information within the specified period would render the status of the enterprise as suspended.
The classification of an enterprise would be updated based on the information furnished or gathered from the Government sources including ITR or GST return. In case of upward or downward change in the status of an enterprise, a communication would be sent to the enterprise about the said change. The Notification also provides for the transition period if there is an upward or downward change in the status of an enterprise.
With the notification of the new comprehensive rules for MSMEs, the Government has enlarged the scope of MSME sector to a great extent. Now, even the large enterprises on the basis of the new MSME Classification can get themselves registered on Udyam Registration Portal and avail the benefits/exemptions reserved for MSME sector, which were earlier not available to them. It is important to note that the registration on Udyam Registration Portal is voluntary and not mandated by the MSME Ministry. However, for availing the benefits/exemptions available to MSME sector, the enterprises must get themselves registered on Udyam Registration Portal on or after July 01, 2020.