In exercise of powers conferred under the Micro, Small and Medium Enterprises Development Act, 2006 hereby notifies certain criteria for classifying the enterprises as micro, small and medium enterprises and the latest notification has been released on 26th June 2020 with the Gazette ID CG-DL-E-26062020-220191
Classification of enterprises:
An enterprise can be classified as a micro, small or medium enterprise based on the following criteria
i. A micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees.
ii. A small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees.
iii. A medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
|Manufacturing and Service Enterprises
|Investment < 1 crore and Turnover < 10 crores
|Investment < 10 crores and Turnover < 50 crores
|Investment < 50 crores and Turnover < 250 crores
Composite criteria of investment and turnover for classification:
If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover then it will cease to exist in that category and be placed in the next higher category but 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.
For the calculation of investment and turnover in regard of an enterprise having different branches with different Goods and Service Tax Identification Number (GSTIN) against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small, medium enterprise.
Calculation of investment in plant and machinery or equipment:
The above calculated investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.
In case the enterprise is a new enterprise, where no prior ITR is available, the investment will be based on the self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
The expression “plant and machinery or equipment” of the enterprise, shall have the same meaning as assigned in the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).
The purchase (invoice) value of plant and machinery or equipment, whether purchased in first hand or second hand, shall be taken into account the whole amount excluding Goods and Service Tax (GST). In case if the enterprise is a new enterprise then purchase value should be considered on the self-declaration basis, without any ITR.
*The cost of certain items specified in the Explanation I to sub-section (1) of the section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery.
Explanation I to sub-section (1) of section 7 of the MSME Development Act, 2006
“For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded”.
Calculation of Turnover:
As discussed above, turnover will be calculated by considering all the entities which are registered against the same PAN and the combined value will be considered for deciding the category as micro, small, medium enterprise.
But as per the notification the exports of goods or services shall be excluded while calculating the turnover of any enterprise whether micro, small or medium for the purpose of classification. As a part of new definition, the reason for excluding the exports of goods or services is to motivate the entrepreneurs to increase the rate of exports.
Information regarding turnover and export turnover for an enterprise shall be linked to the Income Tax Act or Central Goods and Service Tax Act based on the PAN and GSTIN respectively. The turnover related figures of such enterprise which do not have PAN will be considered based on self-declaration basis for a period up to 31st March 2021 and thereafter, PAN and GSTIN shall be mandatory.
Handholding mechanism named “Champions” in place to assist MSMEs:
Ministry of MSME has reiterated that it has put in place a very strong handholding mechanism for MSMEs and new entrepreneurs in the name of Champions which was recently launched by Prime Minister Narendra Modi.
The Champions Control Rooms functioning in various institutions and offices of the Ministry of Micro, Small and Medium Enterprises including the Development Institutes (MSME-DI) shall act as Single Window Systems for facilitating the registration process and further handholding the micro, small and medium enterprises in all possible manner.
Interested enterprises can take benefit of this mechanism and in case of any discrepancy or complaint we can put there and the same will be attended to with utmost promptness.
Disclaimer:“The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation.”