If you are planning to start a business any time soon, you’re in for a world of surprises. Mostly good ones. You’re coming across an opportune time in your life. But, there are just a few things you need to comply with in order to unlock your full potential. One such thing that the government mandates for new business is the MSME registration.
With so many enthusiastic entrepreneurs starting out their own ventures, it is important they are thoroughly informed of compulsory registrations like the MSME registration. And to facilitate up-and-coming business owners with relevant information, we will uncover the mystery surrounding MSME registrations. From the basics to the advanced, we will comprehensively look at MSME registrations.
Let’s dive right in.
What is MSME?
MSME is an acronym for Micro, Small and Medium Enterprises. The MSME classification is based on the investment cap for that enterprise and the machinery or equipment in use by it. For a Manufacturing enterprise, the investment criteria for each of these is as follows:
- Micro- <Rs. 10 lakh
- Small- <Rs. 2 Cr
- Medium- <Rs. 5 Cr
The above are the limits set on each of these categories. Any business that starts out as either micro, small or medium has the burden of growth with the added burden of not exceeding these limits as that will make the benefits availed by them null and void. Therefore, many industry leaders have come out in protest and demanded a more dynamic classification that aids scalability and growth.
Owing to this demand, under the Atma Nirbhar Bharat Abhiyan (ABA), recently the government has made important changes.
The changes brought about have set in place a composite scheme where investment and an annual turnover of businesses (or SME) both are taken into consideration to classify businesses as MSME.
What is an MSME Certificate?
Post successful MSME registration, applicants are allotted an MSME certificate. This serves as evidence of registration. And is a valid document accepted to avail any schemes, concessions, and authorization.
If any one applicant is trying to register multiple MSMEs, they must go through a separate registration for each enterprise. And for each of these, a separate MSME certificate is issued.
What businesses are categorized under the MSME scheme?
For every industry, the government has prepared classifications to categorize businesses as micro, small or medium. Currently, the classification is based on:
- Manufacturing Enterprises
Enterprises Rendering Services
The updated notification as published in the Gazette of India, June 1, 2020 (with effect from July 1, 2020) omits the existing definition as published in the same on the 29th September 2006, roughly as follows:
Industry: Plant and Machinery or Equipment
A business under the above-specified industry will be considered a micro-enterprise if it does not exceed 1 crore rupees in investment and the annual turnover does not exceed Rs 5 crore rupees.
Industry: Plant and Machinery or Equipment
A business under the above-specified industry will be classified as a small enterprise if it does not exceed 10 crore rupees in investment and the annual turnover does not exceed 50 crore rupees.
Industry: Plant and Machinery or Equipment
A business under the above-specified industry will be classified as a medium enterprise if it does not exceed 50 crore rupees in investment and the annual turnover does not exceed 250 crore rupees.
To simplify, the classification stands as follows for Plant, Machinery or Equipment:
- Micro: Investment<Rs. 1 lakh & Annual Turnover<Rs.50 Cr
- Small: Investment<Rs. 10 Crore & Annual Turnover<Rs. 50 Cr
- Medium: Investment<Rs. 50 Cr & Annual Turnover<Rs. 250 Cr
What are the benefits of MSME registration?
Ministry of Micro, Small and Medium Enterprises notes the vibrancy and dynamism of the MSME sector as a solid contributor to the growth of the economy of India. Over the last 5 decades, the contributions and support MSMEs provide towards the industrialization and upliftment of the rural and backward areas.
To that effect, MSMEs have also played a great role in promoting the legacy of our great nation. For all these reasons and more, MSMEs are extremely crucial. And the Ministry of MSMEs offers so many schemes and benefits to MSME owners to make business as lucrative as possible, yet stable.
Here are some of the benefits bestowed upon registered MSMEs by the Govt. of India:
- Registered MSMEs have lower interest rates on bank loans by a huge margin. MSMEs can avail loans at as low as 1% with friendlier EMIs.
- Registered MSMEs with an MSME Certificate can avail tax exemption.
- Minimum Alternate Tax or MAT for registered MSMEs can be extended to 15 years. Whereas the regular MAT is 10 years.
- MSMEs registered under the Ministry of MSMEs get priority on applications of licenses and certificates issued by the Government of India.
- A registered MSME gets various rebates and concessions on patents and the costs of setting up industry.
- Owners of registered MSMEs can easily access credit for their businesses.
- MSMEs are given preference for government tenders on the Udyam Registration Portal as it is integrated with Government e-Marketplace and other portals that give ease of access to MSMEs on marketplaces and e-tenders.
MSMEs can avail a One Time Settlement Fee for delayed or non-paid amounts of MSME.
Further, the government of India offers so many schemes like the Prime Minister Employment Generation Programme (PMEGP), Revamped Scheme Of Fund for Regeneration Of Traditional Industries (SFURTI), Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE), Skill Upgradation & Mahila Coir Yojana (MCY) and so many more.
What purpose does an MSME registration serve?
The Ministry of MSMEs under the Government of India recognizes the contribution of micro, small and medium enterprises towards the economic growth of the country. And to that effect, it provides an array of subsidies and benefits.
To avail these, and to set up a smooth channel of authorization MSME registration is required.
MSME Registration Process
The process for registration for MSME is fairly easy. It follows these 9 basic steps. (The complete detailed process for registration for those looking to register is mentioned further in this blog):
- Registration is available through both, an online government portal and offline financial institutions.
- Registration for Aadhar number is a prerequisite for MSME registration.
- Applications can be filed online using the Udyog Aadhaar Registration.
- An enterprise is granted provisional registration for 5 years or 60 months.
- The Ministry of MSMEs issues a provisional MSME registration.
- Verification can be done with the e-Aadhaar OTP.
- Through this provisional registration loans and NOCs can be easily obtained.
- After commencing business, now owners can apply for a permanent MSME licence.
- A permanent licence with a lifetime validity can now be availed. Although this is subject to cancellation.
There you have it, the extremely easy process of MSME registration. But as a disclaimer, you must know that having all your documents in place is important.
Documents required for MSME registration
- Address proof of the business
- Copy of the sales and purchase bill book
- Receipts and bills for purchase of equipment or machinery
- Copy of the Industrial Licence
- Aadhaar Number
- PAN card
- Bank Account Number
- IFSC Code
- NIC Code
- Employee data if applicable
- Number of Employees
- Commencement date for Business
- Details of partnership in case of a partnership firm
- GSTIN certificate
- Unregistered Partnership firm: Partnership deed
- Registered Partnership firm: Registration certificate
- Memorandum of Association (MoA)
- Articles of Association (ADA)
- Certificate of Incorporation
- Copy of the resolution passed in general meeting of the company
- Copy of board resolution with an authorization from a director to sign and apply for the MSME application.
What is the validity of an MSME certificate
MSME certificate is valid as long as the business is operational. Moreover, it is issued for a lifetime as long as the classification criteria are met.
Since the composite method of categorization is put in place, businesses are subject to cancellation in case the annual turnover is exceeded and no longer fits in the category of small businesses.
Common doubts around MSME registration
Is Udyog Aadhar and MSME Registration the same?
No. Udyog Aadhar in this context refers to a 12 digit number MSMEs can avail by registering at the Udyog Aadhaar portal. And MSME refers to the registration for classification under micro, small and medium enterprises to avail an MSME certificate. The Udyog Aadhar registration is a compulsory pre-requisite for MSME registration.
Do individuals match the msme registration eligibility?
Since MSME registration is done for businesses and enterprises, individuals cannot as such register for MSME. However, if a one-person enterprise or one in small-scale industries wishes to register for MSME, they can. This will be treated like any other company for MSME registration, both in terms of the process and benefits.
Can existing businesses apply for MSME Registration?
Yes, existing businesses can apply for an MSME registration. However, their existing operations, including investment and the annual turnover will be taken into consideration for the classification criteria.
Can new businesses apply for MSME Registration?
Yes, new businesses can definitely apply for MSME registration. In fact, the Ministry of MSMEs has set up many promotional schemes in place for new businesses and encourages entrepreneurs to register as MSMEs. The criteria for the classification of micro, small and medium industry should be followed as mandatory.
Can trading companies register under MSME?
No, trading companies or enterprises cannot register under MSME. As of now, the Ministry of MSME only allows manufacturing and service industries to register as MSMEs in India. Since, MSMEs are set up to support and enable startups with benefits and concessions, trading companies aren’t eligible to register.
Are different registrations required for plants set up in different cities?
No, under a single entity any number of branches, plants, or industrial units can be clubbed under one MSME registration. Granted that the investment and turnover of each of these comes under the classification criteria. The registration is valid throughout the country and the state government does not define this.
If you’re unsure about the MSME registration process or need help understanding the rules, regulations and its benefits, don’t hesitate in reaching out to a financial expert.
Frequently asked questions about MSME registration
Is MSME Registration Compulsory?
No, MSME registration is not compulsory. Only startups, individuals and business owners who wish to avail the subsidies, concessions, and other schemes can register for MSME at their will. Since, the government directly and indirectly supports MSMEs in a huge way, it is always advised to do so in case your business fits the classification criteria.
What is the MSME Certificate?
MSME certificate is a valid proof of registration. This is issued post a successful registration for one business. If one proprietor or individual has multiple enterprises, they must register each of these individually and obtain different certificates for each of these.
Are MSME registrations updated to Udyam Registration?
Yes. Udyam registration is in fact the MSME registration. For any micro, small or medium industry: any new business can do either the MSME or Udyam registration online.
Is Aadhar Card compulsory for MSME registration?
Yes, an existing Aadhaar card registration is compulsory for MSME registration. However, in case of businesses, where the applicant is someone other than the proprietor: the Aadhaar card of the partner and the director of the enterprise is compulsory. Along with a letter of authorization.