Introduction :The government main focus is to develop small sector enterprises because they provide employment of semi-skilled and unskilled workers at large scale .MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output. They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from Indi, therefore government focus for exponential growth of MSME enterprises. in this article effort has been made to cover the provisions and incentive for MSME sector:
Criteria for classification of MSME: Classification is based on both investment in plant and machinery and annual turnover. In another words both the conditions must be satisfied, Earlier the classification was based on investment in plant and machinery only:
|Condition for annual Turnover
|Condition for investment in plant and machinery
|Less than Rs. 5 crores
|Less than Rs. 1 crore
|Less than Rs. 50 crores
|Less than Rs. 10 crores
|Less than Rs. 250 crores
|Less than Rs. 50 crores
The Government, in the Ministry of Micro, Small and Medium Enterprises has issued a notification number S.O.1702 (E), dated the 1st June, 2020, to make the change the MSME definition in accordance with Aatmanirbhar Bharat Package on 13th May, 2020. New definition and criterion have been notified and has come into effect from 1st July, 2020.
Author Comment: Earlier classification was based on investment in plant and machinery only but now turnover is also taken as basis for classification of enterprises but still this classification enormous because number of employee not taken into account while making calculation.
Exclusion from Plant and machinery Limit:
The Following Items excluded while calculating the cost of investment in plant and machinery.
- Equipment such as tools, jigs moulds and spare parts for maintenance and the cost of consumable stores .
- Installation cost of plant and machinery.
- Research and development equipment and pollution control equipment.
- Power generation set and extra transformer installed by the enterprise as per the regulations of the state Electricity Board.
- Bank charges and service charges paid to the National small industries Corporation.
6.Procurement or installation of cables, wiring bus bars, electrical control panels (not individual machines ), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures.
- Gas producer plants.
- Transportation charges (excluding sales tax or value added tax and excise duty) for indigenous machinery from the place of their manufacture to the site of the enterprise.
- Such storages tanks which store raw materials and finished products only and not linked with the manufacturing process and
- Firefighting equipment.
Inclusion in the value of investment in the case of imported plant and machinery, irrespective of whether the plant and machinery are new or second hand.
- Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory demurrage paid at the port .
- Shipping charges.
- Customs clearance charges and’
- Sale tax or value added tax.
Author Comment: In the GST era the amount of IGST shall not be included in the cost of imported plant and machinery where credit of ITC is allowed, further the insurance charge on importation shall also be included in the cost of plant and machinery and not only that landed cost in bringing plant and machinery in factory or other place of use should be taken.
|investment in plant and machinery
|X & Co.
|Rs. 4 crores
|Rs 90 Lakhs
|Y & Co.
|Rs. 9 Crore
|Z & Co.
|Rs. 50 crores
|Rs. 49 crores
|X & Co.
|Rs. 5 crores
|Rs. 5 crores
|Rs. 240 cores
|Rs. 90 Lakhs
|Rs. 4 cores
|Rs. 5 Crore
Benefits of MSME Registration:
- 1. Collateral-Free Loan Facilities & Priority Lending: Relief to millions of small businesses reeling under the impact of covid-19and lockdown in the country, finance minister has announced Rs 3 lakh Crorecollateral-free automatic loan.
- 2. Credit Linked Capital Subsidies for MSMEs: The Scheme aims to provide 15% capital subsidy for technology up gradations. There is also a ceiling in 15% capital subsidy which is 15 Lakh for induction of well-established and improved technology.
- Protection against Delayed Payments: The Micro, Small and Medium Enterprises Development Act, 2006, has made strict provisions for charging of interest so that problem of delayed payment can be mitigated. In these provisions, if any buyer fails to make payment to MSMEs as per agreed terms or a maximum of 45 days, Buyer need to pay monthly compounded interest which is 3 times of the rate notified by the Reserve Bank of India and interest is disallowed expenses under income tax act and auditor have to report in tax audit report.
- 4. Concessions on Electricity Bills in certain case to MSME Unit
- 5. ISO Certification Charges Reimbursement :The scheme envisages reimbursement of charges for acquiring ISO-9000/ISO- 14001/HACCP certification to the extent of 75% of expenditure subject to a maximum of Rs.75,000 in each case. MSEs with their EM No. are required to submit their application, duly completed, to their local Director, MSME-DI addresses given in the following website: www.dcmsme.gov.in.
- 6. Subsidy on patent registration & industrial promotion: Business enterprises registered under the MSME Act are given a hefty subsidy of 50 % for patent registration. This can be availed by sending an application to the respective ministry. In addition to this, one of the great MSME registration benefits is to get subsidy for industrial promotion suggested by the Government.
- 7. Concession on fee of trade mark Registration: Corporate applying for trade mark registration could gate 50% Concession in the Registration fee. Individuals and proprietorship Firms – INR 4,500/- per class per application. Companies, partnership firms, and LLPs – INR 9,000/- per class per application. If the company has a Udyog Aadhar registration — INR 4,500/- per class per application.
- 8. Tender Preference to MSME: It helps acquire government tenders easily. This is because of the integration of Udyam registration portal with government e-marketplace which provides easy access to e-tenders.
9.Prime Minister Employment Generation Programme for MSMEs: The Government subsidy under the Scheme is routed by Khadi and Village Industries Commission through the partner banks for distribution to the entrepreneurs directly in their Bank accounts.
- 10. Reservation policies for procurement from MSME:The Policy of the Price Preference of 15% is a critical benefit available to the MSME sector. The benefit is available to compensate them on account of non-availability of economies of scale, poor resource base, poor access to raw-material etc. as compared to the large scale sector.
- 11. 15% subsidy of CLCSS: Credit Linked Subsidy Scheme (CLCSS) is a scheme of The Ministry of Micro, Small, Medium Enterprises (MSME) for technological up gradation of the businesses. The government of India launched the scheme in October-2000, and it offers a 15% subsidy which cannot go beyond 15 lakhs. The maximum limit of loans for subsidy’s calculation under the scheme is 100 lakhs.
Following industries can avail benefits of CLCSS:
Drugs and Pharmaceuticals
Common Effluent Treatment Plant
Food Processing (Ice-cream included)
Rubber Processing including vehicle Tyres
Dyes and Intermediates
Industry based on Medicinal and Aromatic plants
Plastic Molded / Extruded Products and Parts/ Components
Poultry Hatchery & Cattle Feed Industry
List of MSME schemes launched by the Government
|Grievance Monitoring Scheme
|Beneficial to get the complaints of business owners addressed timely
|Aimed to cater to innovators in implementing their new product, design, or ideas by providing financial assistance. The government manages approximately 75% to 80% of the costs of innovative projects developed by MSMEs.
|Technology and Quality Up gradation Scheme
|Aimed to help MSMEs to use Energy Efficient Technologies (EETs) to lower down production cost
|Credit Linked Capital Subsidy Scheme
|New technology is provided to the business owners to replace their old and obsolete technology. The capital subsidy is given to the business to upgrade and have better means to do their business. These small, micro and medium enterprises can directly approach the banks for these subsidies.
|Udyog Aadhaar Memorandum Scheme
|To be a part of this scheme, having an Aadhaar number is mandatory for the MSMEs to enjoy easily available loans, credit, and government subsidies offered under the scheme.
|Women Entrepreneurship Scheme
|Women entrepreneurs are encouraged and supported by the government under this scheme by offering capital, training, counseling, and teaching of delivery techniques to women. This makes women capable of running their own MSMEs. It also aims to encourage women to expand and manage their business successfully.
|Zero Defect Scheme
|MSMEs are required to manufacture the export category goods as per the prescribed standards to be a part of this scheme. Compliance with such standards ensures export goods acceptance in foreign nations. The entities, who are a part of this scheme are also given varied tax rebates and concessions for the export goods
Reporting Requirement for transaction with MSME:
- MSME-1 to MCA 21 portal by company :Form MSME I (half-yearly return) has to be filed within 45 days from the end of each half-year in respect of outstanding payments to Micro or Small Enterprise i.e. 30th April 2021 (for October 2020 to March 2021) 31st October 2021 (April 2021 to September 2021).
- MSME disclosure requirements in Annual statement of accounts.
Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:—
- the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
- the amount of interest paid by the buyer in terms of section 16, along with the amounts of the payment made to the supplier beyond the appointed day during each accounting year;
- the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;
- the amount of interest accrued and remaining unpaid at the end of each accounting year; and
- the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23.
3.Reporting by tax auditor: The Interest paid on delayed payment under section 16 of the act, to be disallowed while calculating income of the assessee and the same to be reported in clause 22 of part B in Form 3CD of Tax audit report.
Registration Process For MSME
(1) The form for registration shall be as provided in the Udyam Registration portal.
(2) There will be no fee for filing Udyam Registration.
(3) Aadhaar number shall be required for Udyam Registration.
(4) 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).
(5) In case of a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust, the organisation or its authorised signatory shall provide its GSTIN and PAN along with its Aadhaar number.
(6) 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.
(7) 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.
(8) 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 enterprises:
- All existing enterprises registered under EM–Part-II or UAM shall register again on the Udyam Registration portal on or after the 1st day of July, 2020.
- All enterprises registered till 30th June, 2020, shall be re-classified in accordance with this notification.
- The existing enterprises registered prior to 30th June, 2020, shall continue to be valid only for a period up to the 31stday of March, 2021.
- An enterprise registered with any other organisation under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.
Updation of information in transition period:
- 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 reclassification, 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.
MSME registration process :
- Visit the website https://udyamregistration.gov.in.
- Aadhaar/PAN is required for registration;
- After completion of the process of registration, an Udyam Registration Certificate will be issued;
- This certificate will have a dynamic QR Code from which the web page on Udyam Registration Portal and details about the Enterprises can be accessed;
- There will be no need for renewal of Registration;
- PAN & GST linked details on investment and turnover of Enterprises will be taken automatically from the respective Government databases;
- No Enterprises is supposed to file more than one Udyam Registration. However, any number of activities including manufacturing or services, or both, may be specified or added in one Registration.
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 License
- 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.
- Facilitation and grievance redressal of enterprises:
- 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.
- The District Industries Centers (DICs) will also act as Single Window facilitation Systems in their Districts.
- Any person who is not able to file the Udyam Registration for any reason including for lack of Aadhaar number, may approach any of the above Single Window Systems for Udyam Registration purposes with his Aadhaar enrolment identity slip or copy of Aadhaar enrolment request or bank photo pass book or voter identity card or passport or driving licence and the Single Window Systems will facilitate the process including getting an Aadhaar number and thereafter in the further process of Udyam Registration.
- In case of any discrepancy or complaint, the General Manager of the District Industries Centre of the concerned District shall undertake an enquiry for verification of the details of Udyam Registration submitted by the enterprise and thereafter forward the matter with necessary remarks to the Director or Commissioner or Industry Secretary concerned of the State Government who after issuing a notice to the enterprise and after giving an opportunity to present its case and based on the findings, may amend the details or recommend to the Ministry of Micro, Small or Medium Enterprises, Government of India, for cancellation of the Udyam Registration Certificate.
Conclusion: It has been tried to summarize various provision of MSME such as benefit available to MSME, Registration process, reporting Requirement , handling of grievances and hope it will be beneficial for the readers. because MSME is the backbone of economy of India and high potential of employment generation, therefore we must understand the provision for MSME for availing benefits and due compliances as well if we are transacting with MSME. for any clarification reader can approach the author CA P P SINGH at 9711521060 or firstname.lastname@example.org