MSME: Application of new criteria and norms of registration- effective from 1st July, 2020

Under the Atma Nirbhar Bharat Abhiyan Finance Minister Nirmala Sitharaman announced revision of definition for Micro, Small and Medium enterprises (MSMEs) where the investment limits have been raised. Not only this but have issued new guidelines for classification and registration of MSMEs with effect from 1st July, 2020. The ministry of MSMes have issued a notification on 26th June 2020 in this regards.

On the basis of the new MSMe criteria approved by the government over six crore micro, small and medium enterprises across the country will be classified.

New & Revised definition of MSMe / Classification of MSMe:  

The new definition has eliminated the distinction between manufacturing and services enterprises and the investments have been revised upwards and an additional criteria of turnover have been introduced.

The new definition of MSMe is as follows:

Micro Enterprise:  Manufacturing and services enterprises with investments up to Rs 1 crore and turnover up to Rs 5 crore will be classified as micro enterprises.

Small Enterprise: For small enterprises, the investment criteria and the turnover criteria has been revised upwards to Rs 10 crore and Rs 50 crore respectively

Medium Enterprise: Enterprises with investment up to Rs 50 crore and turnover up to Rs 250 crore will be termed as medium enterprises.

• Once an enterprise crosses the ceiling limits specified for its present category in any of the two criteria of investment or turnover, such entity will cease to exist in the same category and be placed in the next higher category.
• No enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
• All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.

Method of calculation of turnover:

• Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.
• Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.
• The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.

A Few facts about MSME registration Process as revised:

• Under the new norms mentioned in the notification, an MSME will be known as “Udyam” and the whole MSMe registration process will be known as “Udyam Registration”.
• Any person who intends to establish a micro, small or medium enterprise may file Udyam Registration online in the ‘Udyam Registration Portal’, based on self-declaration with no requirement to upload documents, papers, certificates or proof.
• On registration, an enterprise will be assigned a permanent identity number to be known as Udyam Registration Number.
• An e-certificate, namely, Udyam Registration Certificate shall be issued on completion of the registration process.
• Aadhaar number shall be required for Udyam Registration.
• The Aadhaar number shall be of the proprietor in the case of a proprietorship firm, of the managing partner in the case of a partnership firm and of a karta in the case of a Hindu Undivided Family (HUF).
• In case of a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust, the organization or its authorized signatory shall provide its GSTIN and PAN along with its Aadhaar number.
• In case an enterprise is duly registered as an Udyam with PAN, any deficiency of information for previous years when it did not have PAN shall be filled up on self-declaration basis.
• No enterprise shall file more than one Udyam Registration, Provided that any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration.
• Whoever intentionally misrepresents or attempts to suppress the self-declared facts and figures appearing in the Udyam Registration or updation process shall be liable to such penalty as specified under section 27 of the Act.

Registration of existing enterprise:

• All existing enterprises registered under EM–Part-II or UAM shall register again on the Udyam Registration portal on or after the1st day of July, 2020.
• All enterprises registered till 30th June, 2020, shall be re-classified in accordance with this notification.
• The existing enterprises registered before 30th June, 2020, shall continue to be valid only for a period up to the 31st day of March, 2021.
• An enterprise registered with any other organization under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.

Conditions for Updation of information and transition period in classification  :

• An enterprise having Udyam Registration Number shall update its information online in the 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.
• Failure to update the relevant information within the period specified in the online Udyam Registration portal will render the enterprise liable for suspension of its status.
• Based on the information furnished or gathered from Government’s sources including ITR or GST return, the classification of the enterprise will be updated.
• In case of graduation (from a lower to a higher category) or reverse-graduation (sliding down to lower category) of an enterprise, a communication will be sent to the enterprise about the change in the status.
• In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration.
• In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place.

Suggested read: Benefits of MSMe registration

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