RBI Clarification on New Definition of MSME

RBI Clarification on Investment in plant and Machinery for classification of MSME

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RBI Clarification on Investment in plant and Machinery for classification of MSME

Ministry of Micro, Small and Medium Enterprises (MSME), vide Gazette Notification no. S.O.278E dated 19.01.2022 has announced that the existing enterprises registered before June 30, 2020, shall remain valid only until March 31, 2022.

Because of the above amendment, the Reserve Bank of India has issued the Clarification on the New Definition of MSME vide a Notification dated February 18, 2022. The present article briefs the RBI Clarification on the New Definition of MSME.

Existing Definition of MSME

A revision in Micro Small and Medium Enterprises (MSME) definition was announced in the Atmnirbhar Bharat package on May 13, 2020. After the package was announced, several representations for upward revision of the MSME definition.

Hence, the Ministry of Micro, Small, and Medium Enterprises vide a notification dated June 1, 2020, announced the upward definition and criteria of the MSME.

  • MSMEs are classified based on the composite criteria of investment in plant and Machinery and turnover.
  • Exports will not be counted in terms of turnover for any micro, small or medium enterprises.
  • The Ministry has removed the difference between the definition of manufacturing-based MSMEs and service-based MSMEs.

Sl.No

Type of Enterprises Investment in Plant and Machinery or Equipment

Turnover

1 Micro enterprises Less than Rs.1 Crore Less than Rs.5 Crore
2 Small enterprises Less than Rs.10 Crore Less than Rs.50 Crore
3 Medium enterprises Less than Rs.50 Crore Less than Rs.250 Crore

RBI Clarification on New Definition of MSME

RBI now clarified that the validity of documents obtained for ascertaining the investment in plant and Machinery for classification of MSMEs are also valid up to March 31, 2022.

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Documents Required for Ascertaining the investment in plant and Machinery for classification of MSME

Ministry of MSME, GoI, vide their Office Memorandum (O.M.) F. No. 12(4)/2017-SME, dated March 8, 2017, has clarified that for ascertaining the investment in plant and Machinery for classification of an enterprise as Micro, Small, and Medium, the following documents could be relied upon:

  • A copy of the invoice for the purchase of plant and Machinery
  • Gross block for investment in plant and Machinery as shown in the audited accounts; or
  • A certificate issued by a Chartered Accountant regarding the purchase price of plant and Machinery.

The Ministry has clarified that for the investment in plant and Machinery for the classification of an enterprise as Micro, Small or Medium, the purchase value of the plant and Machinery is to be reckoned and not the book value (purchase value minus depreciation).

Guidelines for calculating Investment in Plant & Machinery

The Guidelines for calculating Investment in Plant & Machinery are as follows:

The meaning of “plant and machinery or equipment”: This shall have the same meaning as assigned to the plant and Machinery in the Income Tax Rules, 1962, framed under the Income Tax Act, 1961.

  • The investment shall include only all tangible assets. This excludes land and building, furniture & fittings.
  • The investment does not include intangible assets such as goodwill, intellectual property, etc.

Calculating Investment in Plant & Machinery for Existing Enterprises

  • Investment in Plant and Machinery will be estimated per the Income Tax Return filed for previous years.
  • The written down value of the aforesaid tangible assets shall be considered as mentioned in the latest ITR filing (i.e., March 31).

Calculating Investment in Plant & Machinery for New Enterprise

  • In the case of a new enterprise, where no prior ITR is available, the investment shall be based on the self-declaration of the promoter of the enterprise, and such relaxation shall end after March 31 of the financial year in which it files its first ITR.
  • The purchase (invoice) value of a plant and Machinery or equipment, whether first hand or second hand, shall be taken into account, excluding Goods and Services Tax (GST), on the self-disclosure basis, if the enterprise is a new one without any ITR.
  • The cost of certain items in Explanation, I to sub-section (1) of section 7 of the Act is out from the calculation of the amount of investment in plant and Machinery.

Investment in Plant and Machinery will be linked To Income Tax Return from 2nd year Onwards.

Calculation of Turnover

  • Export of goods or services will be excluded at the time of calculation of turnover of an enterprise.
  • Turnover will be calculated based on linked income tax returns and GST portals. In the case of New Enterprise,
  • Turnover will be based on Self Declaration, and from the 2nd year onwards, it will be Linked To Income Tax Return and GSTIN.

Extension of Udyog Aadhaar Memorandum (UAM) Validity

Ministry of Micro, Small and Medium Enterprises (MSME), vide Gazette Notification no. S.O.278E dated 19.01.2022 has issued an amendment to the original Notification number S.O. 2119 (E), dated June 26, 2020

  • Through this notification, Ministry has provided an amendment in Para 7, which deals with registering existing enterprises.
  • MSME announced that the existing enterprises registered before June 30, 2020, shall remain valid only until March 31, 2022. Previously the last day of validity was extended from March 31, 2021, to December 31, 2021.

Businesses currently functioning under the MSME category can continue using their Udyog Aadhaar Memorandum (UAM) registrations. The Ministry of MSME has announced the extension of the Udyog Aadhaar Memorandum (UAM) validity up to March 31, 2022.

New MSME Udyam Registration

Now, MSMEs can apply for Udyam Registration. The government of India initiated Udyam registration as a substitute to the earlier method of Udyog Aadhaar to make it easier for MSMEs to register with the government portal.
Earlier, the process of Udyog Aadhaar registration was lengthy and confusing. The person registering for the same had to go through many categories and documents, requiring a lot of paperwork. With this new process, any person can register easily in a single window without needing extensive documents or paperwork for the same.

Get in touch with IndiaFilings to get MSME Udyam Registration.

Post by Renu Suresh

Renu is experience content writer specialised in compliances and company rules.