(Article updated on 15th May, 2020)
For quite some time now, the Indian Government has been focusing on the MSME sector. A lot of beneficial schemes have been designed for the SMEs and MSMEs. Unfortunately, a big part of the industry, still are not aware of the benefits that they can be availed. In this piece, we will help you in understanding the meaning of MSME, the registration procedure, the documents required and the benefits of it.
(A) What are MSMEs?
The Micro, Small and Medium Enterprises Act, 2006 defines MSMEs engaged in manufacturing or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act 1951 based on their investment in plant and machinery or engaged in providing or rendering of any service or services. So, for micro unit the investment level was up to Rs 25 lakh, a small enterprise with investment between Rs 25 lakh and Rs 5 crore and a medium one with investment between Rs 5 crore and Rs 10 crore. In case of services, the investment limit was for micro up to Rs 10 lakh, small Rs 10 lakh to Rs 2 crore and medium Rs 2 crore to Rs 5 crore.
The government on Wednesday 13th May,2020 broadened the definition of Micro, Small and Medium Enterprises (MSMEs) by revising the limit of investment in machinery or equipment and introducing a “turnover” criteria — a reform measure that seeks to reverse the traditional policy bias in favour of units staying small in order to qualify for benefits.
As per the revised definition, any firm with investment up to Rs 1 crore and turnover under Rs 5 crore will be classified as “Micro”. A company with investment up to Rs 10 crore and turnover up to Rs 50 crore will be classified as “Small” and a firm with investment up to Rs 20 crore and turnover under Rs 100 crore will be classified as “Medium”.
EXISTING MSME CLASSIFICATIONS
CRITERIA: INVESTMENT IN PLANT AND MACHINERY OR EQUIPMENT
REVISED MSME CLASSIFICATIONS
COMPOSITE CRITERIA: INVESTMENT AND ANNUAL TURNOVER
Manufacturing & Services
Turnover < Rs. 5Cr
Turnover < Rs. 50Cr
B) Registration Process under MSME Act
i) MSMEs can register by simply visiting https://msme.gov.in/online-application and filling the application form
ii) There are no registration fees required for this process
iii) Registration can also be done for more than one industry
C) List of details to be provided for MSME registration on its application form
- Aadhaar number
- Name of Entrepreneur as per Aadhaar card
- Social category (General, OBC, SC/ST)
- Physically Handicapped
- Name of Enterprise
- Type of Organization (Proprietorship, Partnership Firm, Private Limited Company, Public Limited Company, Limited Liability Partnership, Cooperative Society, Hindu Undivided Family, Self-Help Group, Society or Trust)
- PAN Card
- Location/Address of Plant
- Country, State, District, City, Tehsil, PIN Code
- Office Address
- Mobile Number, Email ID
- Date of Commencement of Business
- Bank account number and IFSC code
- Business Activity of Enterprise
- NIC 2 Digit Code – choose primary activity
- Additional detail of enterprise
- Number of Employees
- Investment Amount in Plant and Machinery
(D) Documents Required for Registration
Very few and simple documents are required for MSME Registration in India, namely:
I) Address Proof of Business
For Self-owned premises – Letter of allotment, possession letter or property tax receipt. If there is a municipal license in the business name or in the name of the proprietor, partner or director of the business, no other possession document is required to be submitted.
For Rented premises – Rent Receipt, No Objection Certificate from the owner and any recent utility bill shall suffice.
ii) Charter Documents of the entity
For Partnership Firm (Unregistered)
For Partnership Firm (Registered)
1. Partnership Deed
1. Partnership Deed
1. Memorandum and Articles of Association
2. Certificate of Incorporation
3. copy of the resolution passed in general meeting
4. copy of board resolution authorizing a director to sign the MSME application
iii) Sale/Purchase Invoice Copies
Business is required to submit a copy of sale bill related to each end product that it will supply. Also, for each raw material that it will purchase, a purchase bill has to be submitted.
iv) Copy of Licenses and Bills of Machinery Purchased
In few cases, the applicant has to submit a copy of industrial license which is to be obtained by giving an application to Govt. of India. Further, all bills and receipts related to purchase and installation of plant and machinery have to be kept safe and required to be submitted on demand.
D) Why should you register for MSME – Benefits of MSME Registration in India?
As the definition of MSME has been broadened, the fear among successful MSMEs for graduating out of the benefits due to low threshold has been overcome in the sense that now due to revised threshold no more MSMEs have to kill the urge to grow. Some of the points are enumerated below to understand the benefits more clearly.
- Structural Reforms and Better Transparency
The structural reform has been made to the definition of MSMEs by which the new higher limits in investment and turnover may help MSMEs to grow. Also, by adding the turnover criteria it brings in greater transparency in the classification, as it is easier for the government to verify a company’s turnover using the GST data than the investment in machinery etc.
One of the other markable benefit to MSMEs is by the decision to not have global tenders for government procurement up to Rs 200 crore, the redefinition will assist the MSME sector in growing and emerging as a vibrant and dynamic sector, contributing to self-reliance and employment in a big way
2. Collateral Free and Easy Bank Loans
Due to the MSME registration, the bank loans become cheaper as the interest rate is very low around 1 to 1.5%
The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was launched by the Government of India to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme. The Ministry of Micro, Small and Medium Enterprises, Government of India and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises.
3.Easier to obtain licenses and approvals
It has made very easy for enterprises that are having MSME Certificate to obtain Licenses, approvals and registrations on any field for their business from the respective authorities as they can produce the Certificate of MSME Registration while making application.
4. Special Consideration in International Trade Affairs
Under the International Cooperation Scheme, financial assistance is provided on reimbursement basis to the State/Central Government organizations, industries/enterprises Associations and registered societies/trusts and organizations associated with MSME for deputation of MSME business delegation to other countries for exploring new areas of MSMEs, participation by Indian MSMEs in international exhibitions, trade fairs, buyer seller meet and for holding international conference and seminars which are in the interest of MSME sectors.
5. Octroi & Excise Benefits
The scheme of refund of octroi provided under the Package Scheme of Incentives, 1993 will be included in the new Scheme up to 31-3-2006 on the same pattern. Where account-based cess or other levy is charged instead of or in lieu of octroi, such change will also be eligible for refund as in the case of octroi.
Enterprises that have MSME Registration can enjoy Excise Exemption in the initial year of business, as mentioned in the Excise Exemption scheme by Government and depending on business activity.
6. Waiver of Stamp Duty and Registration Fees
At present, IT units in public IT Parks are exempted from stamp Duty and Registration fees upto 31st March 2006. Now all new industrial units having MSME Registration and expansions will be exempted from payment of Stamp Duty and Registration fees.
7. MAT benefits
MSME registered units are allowed to credit for minimum alternate tax (MAT) to be carried forward for up to 15 years instead of 10 years.
8. IPS Subsidy
Enterprises that have MSME Registration are eligible for Industrial Promotion Subsidy (IPS) as mentioned in the scheme.
9. Counter Guarantee from Government of India through CGSTI
Enterprises that have MSME Registration are eligible for Counter Guarantee from Government of India through CGSTI.
10.Protection against delay in payment
The Ministry of Micro, Small and Medium Enterprises gives protection to MSME Registered Business against delay in payments from Buyers and right of interest on delayed payment through conciliation and arbitration and settlement of dispute be done in minimum time. If any micro or small enterprise that has MSME registration, supplies any goods or services, then the buyer is required to make payment on or before the date agreed upon between the buyer and the micro or small enterprise. In case there is no payment date on the agreement, then the buyer is required to make payment within fifteen days of acceptance of good or services. Further, in any case, a payment due to a micro or small enterprise cannot exceed forty-five days from the day of acceptance or the day of deemed acceptance. In case of failure by the buyer to make payment on time, the buyer is required to pay compound interest with monthly interest rests to the supplier on that amount from the agreed date of payment or fifteen days of acceptance of goods or service. The penal interest chargeable for delayed payment to a MSME enterprise is three times of the bank rate notified by the Reserve Bank of India.
11. Focused approach by Banks towards MSME
i) The rate of Interest for enterprise that has MSME registration are lower as compare to other enterprises. Certain targets are set for banks’ lending to the Micro and Small Enterprises. The banks’ have to achieve a 20% growth in credit to micro and small enterprises and 10% annual growth in the number of micro enterprises accounts and 60% of total lending to Micro and Small Enterprises sector. The banks have to follow the following:
ii) 40% of the total advances must go to micro and small enterprises involved in manufacturing having investment in plant and machinery up to Rs.10 lakh and for service enterprises having investment in equipment up to Rs.4 lakh.
iii) 20% of the total advance to micro and small enterprises should go to manufacturing enterprises that have above Rs.10 lakh till Rs.25 lakh investment in the plant and machinery and for service enterprises that have investments in equipment above Rs.4 lakh
iv) To simplify, 60% of the advances must go to micro enterprises.
12. 15% CLSS subsidy
The Ministry of Micro, Small and Medium Enterprises is operating a scheme namely “Credit Linked CGSTI Subsidy Scheme (CLCSS)” for technology upgradation of Micro and Small Enterprises. The scheme was launched in October-2000 and revised from 29.9.2005. The revised scheme aims at facilitating technology upgradation of Micro and Small Enterprises (MSEs) by providing 15% capital subsidy (limited to maximum Rs.15 lakhs) for purchase of Plant & Machinery. Maximum limit of eligible loan for calculation of subsidy under the scheme is Rs.100 lakhs. Presently, more than 1500 well established/improved technologies under 51 sub-sectors have been approved under the Scheme.
13. Waiver in Security Deposits to Governments
The Ministry of Micro, Small and Medium Enterprises gives following benefits to enterprises that has MSME Registration while making application for Government Tenders:
i) Issue of tender sets free of cost
ii) Exemption from payment of Earnest Money
iii) Waiver of Security Deposit upto the Monetary Limit for which at the unit is registered
14. 50% subsidy for Patent Registration
Enterprises that have MSME Registration Certificate can avail 50% subsidy for patent registration by making application to respective authority.
15. 1% exemption on OD Interest Rates
Enterprises that have MSME Registration can avail benefit of 1% exemption on interest rate on OD as mentioned in the scheme.
(E) MSME Loan Scheme
MSME loans are business loans offered to the MSMEs or Micro, Small and Medium enterprises or to the SMEs or Small and Medium Enterprises in the form of SME loans.
Popular MSME loan schemes
1. Mudra Loan
2. Credit Guarantee Funds Trust for Micro and Small Enterprise or CGTMSE
3. Prime Minister’s Employment Generation Programme or PMEGP
Popular SME loan products
1.Working Capital Loan
Announcements in Budget 2019:
GST registered MSMEs can get 2% interest subvention from Government for incremental loans of Rs 1 crores under the MSME Credit Scheme.
(F)Relief Package for MSMEs
COVID19 Relief and Atmanirbhar Package for MSMEs announced on 13th May 2020 states:
- Banks and NBFCs to provide Emergency Credit Line to MSMES to up to 20% of entire outstanding credit as on 29.2.2020. 100% of such credit shall receive a guarantee cover by government
- Eligible Borrowers: Up to Rs 25 crore of outstanding loan and up to Rs 100 crore of turnover
- Loan Tenure: 4 years with 1 year moratorium
- Interest: Interest Capped and No Guarantee Fee
- Validity: Scheme available till 31st Oct 2020
- Subordinated Debt along with partial guarantee support from government to banks for providing Rs 20000 crore subordinated debt to stressed and NPA MSMEs. Government to take the risk cover up to first 20% of the loss
- Fund of Funds with a corpus of Rs 10000 crore to be set up to provide equity funding support to MSMEs with high growth potential
- Global Tenders for any government procurement of up to Rs 200 crore disallowed which means more opportunity for domestic MSMEs
- All MSME receivables from Gov and CPSEs to be released in the next 45 days.
(G) Compliances for MSME
MSME Form 1 is a mandatory compliance for the Specified companies which are defined in Section 9 of the MSMED (Micro, Small and Medium Enterprises Development) Act. These specified companies file the MSME Form 1 on a. half-yearly basis to the MCA (Ministry of Corporate Affairs).
Here the Specified companies are those companies who get supply from micro small and medium enterprises. In addition to this, Companies whose payments to Micro and small enterprise suppliers transcend 45 days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of Section 9 of the MSMED (Micro, Small and Medium Enterprises Development) Act, 2006.
About MSME Form 1
Every specified company has to submit the yearly return on a half-yearly basis to the Registrar concerning the outstanding payments to the Micro, small and medium enterprises which contain the following information:
- The amount of payment due;
- The reasons for the delay.
(H) Responsibilities of the Specified Companies after the MSME Registration
The task does not end after one had the MSME Registration; there are certain compliance which needs to be followed by the Specified Companies.
- The Specified Companies need to check whether their suppliers are registered under the MSME Act or not.
- If they are registered under the MSME Act, the Specified Companies need to check if there is any due payment from their end for a period which has exceeded 45 days from the date of acceptance of the services or goods by such company. Also, the company has to either close or file a return of the particulars of the due payments stating the reason for the delay in the MSME Form1.
(I) Due Date of MSME Form 1
All the specified companies are required to file the yearly return on a half-yearly basis. These companies need to file in the MSME Form 1 stating the Outstanding dues to the Micro Small and medium enterprises suppliers within 30 days from the date of the publication of the notification specifying the order to perform the same.
(J) Extension of the Due Date
In a circular dated 21st February 2019 the Ministry of Corporate Affairs said that the date for filing the MSME Form 1 will be reckoned from the time now the form is deployed on the MCA 21 Portal.
Typically, the due dates for the filing of the MSME Form 1 were as follows;
Period of Return
Date of Filing
April to September
October to March
(K) Penalty for not complying with these standards
Following are the penalties for not complying with these standards:
- There will be a fine of INR 25000 with the Defaulter Company.
- The concerned officer of the company will be liable for imprisonment up to six months, or there will be a fine from INR 25000 to INR 3, 00,000.
Reach us at https://taxmantra.com/business-maintenance/ or Call/WA us at +91-9230033070 for any support/query/feedback.