What is MSME?
MSME stands for Micro, Small and Medium Enterprise (MSME), which is defined as entities engaged in the production, manufacturing, processing, or preservation of goods and commodities and was introduced by the Indian government following the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The MSME sector is regarded as the backbone of the Indian economy, having made significant contributions to the country’s socio-economic growth. It creates jobs and contributes to the development of underdeveloped and rural regions. According to the government’s annual report for 2018-19, India now has 6,08,41,245 MSMEs.
The distinction between manufacturing and service businesses has been eliminated by lowering the investment amount and yearly turnover for both businesses.
MSME – Merged Criteria: Investment and Annual Turnover
An enterprise shall be classified as a micro, small or medium enterprise based on the following criteria, namely: —
- 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;
- 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
- A medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover exceeds two hundred and fifty crore rupees.
Here are the Key Takeaways from the New MSME Definition presented by the Government of India in the ‘Atma Nirbhar Bharat Abhiyan ‘or Self-Reliant India Scheme 2020.
❖ Collateral Free Loans to MSMEs
❖ MSME Loans worth Rs. 3 lakh crore
❖ The moratorium period offered is 12 months
❖ Manufacturing and Service MSMEs shall be considered as the same entities
❖ Repayment Tenure of 48 months
❖ 100% Credit Guarantee
❖ To benefit approx. 45 lakh units
BECOMING A MICRO, SMALL OR MEDIUM ENTERPRISE
- Anyone who wants to start a micro, small, or medium business can use the Udyam Registration portal to fill out a self-declaration form with no need to upload any paperwork, papers, certifications, or evidence.
- A permanent identifying number known as the “Udyam Registration Number” will be issued to an enterprise (referred to as “Udyam” in the Udyam Registration site) upon registration.
- On completion of the registration procedure, an e-certificate titled “Udyam Registration Certificate” will be issued.
MSME registration is completely free, requires no paperwork, and is based on self-declaration.
➢ The MSME registration procedure is entirely online, without paper, and is based on self-declaration.
➢ For registering an MSME, no paperwork or evidence are required to be supplied.
➢ For registration, only your Aadhaar number will suffice.
➢ PAN and GST-related information on investment and turnover of businesses would be automatically retrieved from government databases.
➢ Their online system will be completely linked with the systems used by the IRS and the GSTIN.
➢ With effect from 01.04.2021, having a PAN and GSTIN (as per the application of the CGST Act 2017 and as announced by the Ministry of MSME via S.O. 1055(E) dated 05th March 2021) is necessary for Udyam Registration.
➢ Those with an EM-II or UAM registration, or any other registration granted by a Ministry of MSME authority, will need to re-register.
➢ There may be no more than one Udyam Registration per business. However, in one registration, any number of activities, including production, service, or both, maybe defined or added.
REGISTRATION PROCESS FOR MSME
- The registration form will be available on the Udyam Registration portal.
- There will be no charge for registering for Udyam.
- Udyam Registration will require an Aadhaar number.
- In the case of a proprietorship company, the Aadhaar number will be that of the owner, the controlling partner in the case of a partnership firm, and a Karta in a Hindu Undivided Family (HUF).
- The organization or its authorized signatory must submit its GSTIN and PAN, as well as its Aadhaar number, in the case of a Company, a Limited Liability Partnership, a Cooperative Society, a Society, or a Trust.
- If an entity is properly registered as an Udyam with a PAN, any information gaps from prior years when it did not have a PAN must be filled out on a self-declaration basis.
- No business may submit more than one Udyam Registration, except that any number of activities, including manufacturing, service, or both, may be listed or added to a single Udyam Registration.
- Anyone who willfully misrepresents or tries to hide self-declared facts and figures in the Udyam Registration or updation procedure will be subject to the penalties set out in section 27 of the Act.
Benefits of MSME registration
Although MSME registration is not required, it has been given to optimize their benefits under the system and take advantage of the government’s incentives. There are several advantages, including priority funding, cluster financing, and implementing the most up-to-date quality management standards.
Let’s take a look at the advantages of MSME registration one by one:
- 50% Subsidy on Patent Registration: If you’ve invented something unique, such as an innovative product or business strategy, and want to patent it, you’ll have to pay a high price. However, with MSME registration, one may get a 50% rebate on patent registration.
More entrepreneurs will be encouraged to develop and innovate as a result of this approach. Moreover, they can get a 50% subsidy if they register with their relevant industry.
- Collateral Free Loans: One of the most significant advantages of MSME registration is the availability of collateral-free business loans from banks and NBFCs. This implies that SMEs and MSMEs may now take out loans such as working capital loans and credit line loans without putting up any collateral.
- Exemption of interest on Overdraft: The overdraft option is available to MSMEs with a solid credit history and good relationships with their banks. MSMEs are eligible for a 1% interest rate reduction on overdraft facilities. For MSMEs, this may be highly advantageous. MSMEs should verify with their bank, as not all banks provide this service.
- Reservation Policy: One of the best things about the MSME sector, as previously said, is that it has been mostly unaffected by outsiders. The success of the MSME sector has been phenomenal as a result of this. The government’s reservation program is responsible for a large portion of this achievement.
Some MSME sectors have been granted exclusive manufacturing rights for specific items. The central government has reserved the procurement of over 300 items solely from this sector under the Government Stores Purchase Program. This boosts the MSME market, which is unaffected by fierce rivalry.
- Technological Upgradation for MSME’s: Due to a lack of advanced technology, some MSMEs may not be able to utilize their resources fully. Under the Capital Aid for Technological Upgrading Scheme, the government assists these businesses in upgrading their equipment with cutting-edge technology by assisting them in obtaining low-interest bank loans. With the advancement of technology, the government is encouraging more MSMEs to enter the technology sector by providing aid and financial assistance.
- Protection against delayed payments: One of the most significant benefits of registering under the MSME plan is the government’s protection against late payments. In a business transaction, this safeguard against late payments is used against the purchasers. Suppose a buyer purchases products or services from a micro or small business with MSME registration. In that case, the buyer must pay on or before the date agreed upon between the buyer and the micro or small business. If the agreement does not include a payment deadline, the buyer must pay within fifteen days of receiving the goods or services. The buyer must pay a fee to the MSME registered business if payment is not made on time. This helps most MSMEs to ensure they have no outstanding debtors or bad debts.
The benefits listed above demonstrate how critical and beneficial it is for an MSME to register under the MSME Act. Overall, registering as an MSME provides several advantages that might help your firm grow.
Why is it important to register your business under MSME?
Over the last several years, India’s entrepreneurial culture has flourished. As a result, growth has increased, particularly in semi-urban and rural regions, opening the way for the SME and MSME sectors. To boost the growth of the SME and MSME sector, the government has implemented many plans, incentives, and subsidies aimed at increasing individual involvement in the industry.
If a company is registered under the MSME program, it is entitled to various tax breaks, municipal programs, subsidies, and other incentives. Banks also provide low-interest loans to such businesses, assisting them with their operations and growth.
The MSME and SME sectors account for about 70% of India’s GDP. This applies to enterprises ranging from agriculture to raw resources, manufacturing, and retail. Therefore, it is critical for small businesses to be registered in the MSME sector, both for their growth and to make things simpler for the government.