Banking Article, Banking Finance 2020, Banking Finance July 2020

Let’s Understand MSMEs under New Rule

Till 25th may 2020, the classification of MSMEs was done based on investment in plant & machinery/equipment in accordance with the provision of Section 7 of MSMED Act, 2006, but on 26th of May 2020 while delivering the part of Atma Nirbhar Bharat Package, our Finance Minister Smt. Nirmala Sitharaman brought up a change in the definition of MSMEs by announcing the amendments in the section 7 of MSMED Act, 2006. Earlier, the MSMEs were defined on the basis of investments put in, now the revised definitions will also include turnover of the company.  Government also declared that there will be no more distinction between Manufacturing and Service MSMEs. In exercise of the powers conferred by sub-section (1) read with sub-section (9) of section 7 of the ‘Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) and in supersession of the notification of the Government of India, Ministry of Small Scale Industries, dated the 29th September, 2006, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section(ii), vide S.O. 1642(E), dated the 30th September 2006 except as respects things done or omitted to be done before such supersession, the Central Government, hereby notifies the following criteria for classification of micro, small and medium enterprises, namely:—

(i) 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) 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) 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.

This notification shall come into effect from 01.07.2020.

Existing and Revised Definition of MSMEs

Existing MSME Classification
Criteria : Investment in Plant and Machinery or Equipment
Classification Micro Small Medium
Mfg Enterprises Investment<Rs.25 lac Investment<Rs.5 Cr. Investment<Rs.10 Cr.
Service Enterprises Investment<Rs.10 lac Investment<Rs.2 Cr. Investment<Rs.5 Cr.
Revised  MSME Classification
Composite Criteria : Investment and Annual Turnover
Classification Micro Small Medium
Manufacturing and

Service Enterprises

Investment<Rs.1 Cr.


Turnover<Rs.5 Cr.

Investment<Rs.10 Cr.


Turnover<Rs.50 Cr.

Investment<Rs.50 Cr.


Turnover<Rs.250 Cr.

Questionnaire Answers
How to become MSME?


o   File Udyam Registration online in the Udyam Registration Portal

o   Based on self declaration

o   No requirements to upload documents, papers, certificates or proof

o   On registration, Udyam Registration Number (URN) will be allotted.

o   E- Certificate: Udyam Registration Certificate on completion of the registration process


Highlight the norms of shifting from one category to another (both down gradation and up gradation).


o   Up gradation to next Higher Category: If enterprise crosses the ceiling limits specified for its present category in either of two criteria – Investment as well as Turnover


o   Down gradation to lower Category: No enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both of the criteria – Investment as well as Turnover. Status quo will be maintained during that financial year. Benefits of the changed status will be available from 1st April of the ensuing year.


o   All units with GST numbers listed against same PAN shall be collectively treated as one Enterprise


o   The Turnover & Investment will be clubbed for all the units and then the category will be decided


What is the process of calculation of investment in plant and machinery or equipment?


o   Plant & Machinery or equipment: Include all tangible assets (other than land and building, furniture and fittings).


o   Purchase value of P & M: Whether purchased first hand or second hand, purchase invoice value shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR.


o   Calculation of turnover: Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprises.


o   Enterprises having no PAN: For such enterprises, Turnover will be considered on declaration basis only for a period upto 31 March 2021 and thereafter PAN and GSTIN shall be mandatory.

What is the process of Registration of existing enterprises under the new rule? o   Enterprises shall register again on the Udyam Registration portal on or after the 1st day of July, 2020.


o   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.

What is the process of updation of information and transition period in classification? o   Updation of details of ITR & GST Return for the previous        year on self declaration basis.

o   Failure to update the relevant information within due date – Suspension of registration.

o   Based on information furnished- the classification of the enterprises will be updated.

o   In case of an upward change in term of investment in P&M or    Equipment or Turnover or both and consequent reclassification,        enterprise will maintain its prevailing status till expiry of one financial year from the close of year of registration.

o    In case of reverse graduation of enterprises- the enterprise will continue in its present category till the closure of the FY.


What is the grievance redressal process? o   The Champion Control Room– Single window system for facilitation the registration process and handholding to MSMEs in all possible manners.

o   The District Industrial Centers (DICs) – Single Window facilitation system in districts.

o   Person not having aadhaar no, may approach any of the above single window system for getting an Aadhaar number and Udyam Registration thereafter.

o   In Case of any discrepancy or complaint- General Manager of DICs shall undertake an enquiry for verification of the details of Udyam Registration submitted by enterprises.

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