A Beginner’s Guide to MSME Classification: What You Need to Know

Micro, Small, and Medium Enterprises (MSMEs) are considered a major power force in India’s economy, contributing significantly to employment, GDP growth, and exports. The Government of India recognizes the vital role played by MSMEs and has implemented several policies and initiatives to support their overall development.

MSMEs are classified based on their plant and machinery or equipment investment and annual turnover. This article will provide a beginner’s guide to MSME classification in India and what you need to know.

MSME Classification Criteria

The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, provides the legal framework for MSME classification in India. The MSMED Act defines MSMEs based on two criteria: investment in plant and machinery or equipment and annual turnover.

~ Micro Enterprises – Micro enterprises are the smallest category of MSMEs, defined as enterprises with investment in plant and machinery or equipment up to ₹1 Crore and an annual turnover of up to ₹5 Crore.

~ Small Enterprises – Small enterprises are defined as enterprises with investment in plant and machinery or equipment between ₹1 Crore and ₹10 Crore and an annual turnover between ₹5 Crore and ₹50 Crore.

~ Medium Enterprises – Medium enterprises are defined as enterprises with investment in plant and machinery or equipment between ₹10 Crore and ₹50 Crore and an annual turnover between ₹50 Crore and ₹250 Crore.

Benefits of MSME Classification

The government of India provides several benefits and incentives to MSMEs to promote their growth and development. These benefits include:

~ Priority Lending – MSMEs are eligible for priority lending from banks and financial institutions, ensuring easy access to credit.

~ Collateral-free Loans – MSMEs can avail of up to ₹2 Crore of collateral-free loans under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

~ Subsidies – MSMEs can avail of subsidies for participating in trade fairs, technology up-gradation, and international exhibitions.

~ Tax Benefits – MSMEs can avail of various tax benefits, including exemption from certain taxes, capital gains tax benefits, and credit for minimum alternate tax paid.

~ Procurement Preferences – The government of India provides procurement preferences to MSMEs for goods and services required by government agencies.

MSME Registration

While the registration of MSMEs is not mandatory, it is recommended because it provides several benefits to such enterprises. To register an MSME, the enterprise needs to submit an application to the District Industries Centre or the Udyog Aadhaar Portal, which should include the following details:

~ Aadhaar Number – The Aadhaar number of the owner or the authorized signatory of the enterprise.

~ PAN Number – The PAN number of the enterprise or business establishment.

~ Business Details – The enterprise’s name, type of organization, location, and date of commencement.

~ Investment Details – The investment in plant and machinery or equipment.

~ Contact Details – Contact details of the enterprise, including email and phone number.

Once the application is submitted, the District Industries Centre or the Udyog Aadhaar Portal will issue a unique Udyog Aadhaar Number (UAN) to the enterprise. The UAN is used for availing various benefits and incentives provided to MSMEs.

Benefits of Getting an MSME Loan

MSME Loans are specifically designed to meet the financial requirements of MSMEs, including working capital and funding for capital expenditures. These loans provide various benefits, including:

~ No Collateral Involved – Most MSME Loans are collateral-free, which means MSME owners are not required to put any asset as security against the loan amount.

~ Lower Interest Rates – Some Non-Banking Financial Companies (NBFCs) offer MSME Loans at attractive interest rates.

~ Flexible Repayment Terms – Small business owners can avail of MSME Loans that come with flexible repayment terms.

~ Simplified Documentation Requirements – Business owners are required to submit only the necessary KYC documents as required by the MSME Loan lender.

~ Easy-to-fulfil Eligibility Criteria – The eligibility criteria for MSME Loans are quite straightforward.

~ Quick Loan Processing – Most MSME Loans offered by NBFCs can be availed online, with the entire process completed in a short time.

Additionally, MSME Loans can help businesses expand their operations, upgrade their technology and equipment, and increase their production capacity.

Conclusion

MSME classification in India provides numerous benefits to small and medium-sized businesses, including priority lending, collateral-free loans, tax benefits, procurement preferences, and subsidies. While MSME registration is not mandatory, it is highly recommended as it allows enterprises to avail of various incentives provided by the government of India.

Furthermore, as a small or medium-sized business owner in India, understanding MSME classification criteria and the benefits of MSME Loans is crucial for accessing the funding and support available for your business’s growth and success.