On October 18, 2022, the Ministry of Micro, Small & Medium Enterprises (MoMSME) issued an amendment to a notification dated June 2020, which specifies certain criteria for classifying an enterprise as an MSME and various forms & procedures for filing the memorandum. The amendment notification regarding criteria for being an MSME stated that in case of an upward change or alteration in terms of investment in plant and machinery/equipment or turnover or both & consequent reclassification, an enterprise should continue to avail of non-tax benefits of the category (Micro/Small/Medium) it was in before the reclassification for 3 years from the date of such upward. In this blog, we will discuss the notification regarding the Criteria for Being an MSME.
Classification of Enterprise
An enterprise shall be categorised as a Micro/Small/Medium enterprise on the basis of the following criteria:
- A Small-enterprise, where the investment in plant & machinery/equipment doesn’t exceed Rs. 10 crores and turnover doesn’t exceed Rs. 50 crores;
- A Micro-enterprise, where the investment in plant & machinery/equipment doesn’t exceed Rs. 1 crore & turnover doesn’t exceed Rs. 5 crores;
- A Medium-enterprise, where the investment in plant & machinery/equipment doesn’t exceed Rs. 50 crores & turnover doesn’t exceed Rs. 250 crores.
Composition of Investment & Turnover for Classification of Enterprises – Criteria for being an MSME
Following is the composition of investment and turnover of classification of enterprises:
- A composite criterion of investment & turnover shall apply for the categorisation of an Enterprise as Micro/Small/Medium;
- All units with GSTIN listed against the same PAN (Permanent Account Number) shall be collectively treated as one enterprise & the turnover & investment figures for all of such entities or companies shall be seen together & only the aggregate value will be considered for deciding the category as MSME;
- If an enterprise crosses the ceiling or upper limits specified for its current category in either of 2 criteria of investment/turnover, it will cease to exist in that category & be placed in the next higher category, but no enterprise or company shall be placed in the lower category unless it goes below the upper limits specified for its current category in both the criteria of investment and turnover.
Calculation of Investment in Plant & Machinery/Equipment – Criteria for being an MSME
- In the case of a new enterprise, where no prior ITR (Income Tax Return) is available, the investment will depend on the enterprise promoter’s self-declaration & such relaxation shall end after the 31st March of the F.Y. (Financial Year) in which it files its 1st Income Tax Return;
- The purchase (invoice) value of a plant & machinery/equipment, whether purchased 1st hand or 2nd hand, shall be taken into account, excluding GST, on a self-disclosure basis if the enterprise or company is a new one without any ITR;
- The expression Plant & Machinery/Equipment of the enterprise shall have a similar meaning as assigned to the plant & machinery or equipment in the Income Tax Rules (IT Rules), 1962, framed under the IT Act, 1961 & shall include all vital tangible assets (other than land & building furniture & fittings);
- The cost of certain products specified in Explanation I to sub-section (1) (Section 7 of the Act) shall be expelled from the calculation of investment amount in Plant & Machinery;
- The calculation of investment in Plant & Machinery/equipment will be associated with the ITR of the previous or last year filed under the IT Act, 1961.
Calculation of Turnover
- Exports of goods/services or both shall be excluded while estimating the turnover of any enterprise or business, whether Micro/Small/Medium;
- Details as regard turnover & exports turnover for an enterprise shall be associated linked to the IT Act or the CGST Act and the GSTIN;
- The turnover-related figures of such enterprises which don’t have PAN will be deemed on a self-declaration basis for a period of up to 31st Mar 2021 and thereafter, GSTIN and Pan shall be mandatory.
Updation of Details & Transition Period in Classification of Enterprise as per the New Amendment Regarding the Criteria for being an MSME
- An enterprise having URN or Udyam Registration Number shall update its details online on the Udyam Registration website, including the details of the GST Return & ITR for the previous Financial Year & other additional details as may be required, on self-declaration basis;
- Failure to update the details within the stipulated period will render the enterprise responsible for suspension of its status;
- Based on the details provided or collected from the Government’s sources comprising ITR or GST Return, the categorisation of the enterprise will be updated;
- In case of graduation ( from lower category to higher category) or reverse graduation of an enterprise, a communication will be sent to the enterprise regarding the change in the status;
- “In case of an upward change or alteration in terms of investment in plant & machinery or equipmen/turnover or both, & consequent reclassification, an enterprise shall continue to avail of non-tax advantages of the category (Micro/Small/Medium) it was in before the reclassification for 3 years from the date of such upward”. In the previous notification issued by MoMSME in 2020, it was “in case of an upward change or alteration in terms of investment in plant & machinery or equipment or turnover/both, & consequent reclassification, an enterprise will maintain its usual status till expiry of 1 year from the closure of the year of registration”.
- In case of reverse graduation of an enterprise, whether as an outcome of reclassification or due to actual changes in investment in plant & machinery/equipment or turnover or both & whether the enterprise or company is registered under the Act/not, the enterprise or company will continue in its current category only with effect from 1st April of the F.Y. (Financial Year).
The MoMSME has issued the notification regarding the criteria for being an MSME, which specifies certain criteria for classifying an enterprise as MSME and various forms & procedures for filing the memorandum.
Read Our Article:What are the Essentials of MSME Registration?