The government’s move to change the definition of the micro, small and medium enterprises (MSMEs) to assist companies in dealing with the COVID-19 aftermath, has brought about a surprising and welcome change. India is now a country of small businesses with over 99 percent of companies falling under this category. The introduction of the twin factors of investment and turnover over the earlier definition based only on investment on plant and machinery has brought about this change.
The earlier definition based on investment in machinery and equipment was to get the main benefit of excise duty relief apart from other government benefits. Excise duty has been done away with the introduction of GST.
An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria, namely: —
(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; and
(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.
Government has organised a full system of Facilitation for Registration Process:
- An enterprise for the purpose of this process will be known as Udyam and its Registration Process will be known as ‘Udyam Registration’
- A permanent registration number will be given after registration.
- After completion of the process of registration, a certificate will be issued online.
- This certificate will have a dynamic QR Code from which the web page on the Portal and details about the enterprise can be accessed.
- There will be no need for renewal of Registration.
- The single window systems at Champions Control Rooms and at DICs will help you in the process.
- Registration Process is totally free. No Costs or Fees are to be paid to anyone.
MSME Registration is free, paperless and based on self- declaration
- MSME registration process is fully online, paperless and based on self-declaration.
- No documents or proof are required to be uploaded for registering an MSME.
- Only Adhaar Number will be enough for registration.
- PAN & GST linked details on investment and turnover of enterprises will be taken automatically from Government data bases.
- The online system will be fully integrated with Income Tax and GSTIN systems.
- Having PAN & GST number is mandatory from 01.04.2021.
- Those who have EM-II or UAM registration or any other registration issued by any authority under the Ministry of MSME, will have to re-register themselves.
- No enterprise shall file more than one Udyam Registration. However, any number of activities including manufacturing or service or both may be specified or added in one Registration.
Register a Micro, Small and Medium Enterprise
- 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 (referred to as “Udyam” in the Udyam Registration portal) 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.
MORE ON REGISTRATION PROCESS
- The form for registration shall be as provided in the Udyam Registration portal.
- 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 organisation or its authorised 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.
Section 27 of MSME Act provides:
27. Penalty for contravention of section 8 or section 22 or section 26.—
(1) Whoever intentionally contravenes or attempts to contravene or abets the contravention of any of the provisions contained in sub-section (1) of section 8 or sub-section (2) of section 26 shall be punishable—
(a) in the case of the first conviction, with fine which may extend to rupees one thousand; and
(b) in the case of any second or subsequent conviction, with fine which shall not be less than rupees one thousand but may extend to rupees ten thousand.
(2) Where a buyer contravenes the provisions of section 22, he shall be punishable with a fine which shall not be less than rupees ten thousand.
FOR 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 reclassified 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 31st day 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.
Spirited enquiry by the government to further plug the gaps
The GST data now reveals that almost 99 per cent of businesses now fall into the MSME definition on the turnover criteria, and more than half the companies registered with GST have less than 20 lakh turnover. The export turnover criteria has also been excluded from the definition, providing relief support to several units while allowing them to grow bigger without restriction. The Income tax department’s data and analysis show that after considering the depreciation of assets, only a few thousand firms in India have an investment in machinery and equipment that exceeds Rs. 50 crore, the upper limit of the medium enterprise.
Encouraged on by the information released by the GST authorities, the government now intends to fill the gaps using the IT and GST data. The MSME ministry has detected that one Aadhaar number can be used to create up to five Udyog Aadhaar numbers, the unique number given by the MSME ministry to the small businesses that register with them. Business enterprises can now develop into multiple, separate supportive entities and continue to claim all the benefits given by the government.
As per latest RBI Notification Number FIDD.MSME & NFS.BC.No.4/06.02.31/2020-21 dated 21.08.2020, clarifications regarding new definition of Micro, Small and Medium Enterprises is as follows:
The circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020 on ‘Credit flow to Micro, Small and Medium Enterprises Sector’.
2. In view of the representations from IBA and banks regarding applicability of certain aspects contained in the Gazette notification No. S.O. 2119(E) dated June 26, 2020 on new criteria for classifying the enterprises as micro, small and medium enterprises, the Ministry of MSME, vide their Office Memorandum (OM) No.2/1(5)/2019 – P & G/Policy (pt. IV) dated August 6, 2020 and letter F.No.5/2(2)/2020 – P & G/Policy dated August 13, 2020 has, inter alia, clarified the following:
2.1 Classification of Enterprises as per new definition
(i) Classification / re-classification of MSMEs is the statutory responsibility of the GoI, Ministry of MSME, as per the provisions of the MSMED Act, 2006.
(ii) As per para 2 of the said Gazette notification all enterprises are required to register online and obtain ‘Udyam Registration Certificate’. All lenders may, therefore, obtain ‘Udyam Registration Certificate ’from the entrepreneurs.
2.2 Validity of EM Part II and UAMs issued till June 30, 2020
(i) The existing Entrepreneurs Memorandum (EM) Part II and Udyog Aadhaar Memorandum (UAMs) of the MSMEs obtained till June 30, 2020 shall remain valid till March 31, 2021. Further, all enterprises registered till June 30, 2020, shall file new registration in the Udyam Registration Portal well before March 31, 2021.
(ii) ‘Udyam Registration Certificate’ issued on self-declaration basis for enterprises exempted from filing GSTR and / or ITR returns will be valid for the time being, upto March 31, 2021.
2.3 Value of Plant and Machinery or Equipment
The online form for Udyam Registration captures depreciated cost as on 31st March each year of the relevant previous year. Therefore, the value of Plant and Machinery or Equipment for all purposes of the Notification No. S.O. 2119(E) dated June 26, 2020 and for all the enterprises shall mean the Written Down Value (WDV) as at the end of the Financial Year as defined in the Income Tax Act and not cost of acquisition or original price, which was applicable in the context of the earlier classification criteria.
3. In view of the above, instructions contained in circular FIDD.MSME & NFS.BC.No.10/06.02.31/2017-18 dated July 13, 2017 on ‘Investment in plant and machinery for the purpose of classification as Micro, Small and Medium Enterprises – documents to be relied upon’ are superseded.
4. Further, other instructions contained in circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020 remains the same.
If, written down value is to be taken then it has to be as per Income Tax Act, 1961 rates but, no where specified at what rates whether on SLM or WDV basis. This is an anomaly. If, the assets were appreciated by the enterprise then what is to be taken as investment. The Government must come out with clarification on this.
It is important to note that the MSME covers only the manufacturing and service sector and not the Traders, which are in large numbers in the Country. They have to take huge amount of money from the manufacturing sector. Thus, the trading community must be included in MSME sector.