Revised Criteria and Definition of MSME

Revised Criteria and Definition of MSME

A revision in Micro Small and Medium Enterprises (MSME) definition was announced in the Atmnirbhar Bharat package on 13th May 2020. After the package announced there were several representations for upward revision of MSME definition. Considering this, the Ministry of Micro, Small and Medium Enterprises vide its gazette notification dated 1st June 2020 has announced the upward definition and criteria of the MSME. The new definition and criterion for MSME will come into effect from 1st July 2020 and the existing Definition of MSME valid Upto 30th June 2020.

Gist of Notification

The important announcement of the Ministry of MSME vides its gazette notification is as follows:

  • As per the notification, MSMEs are classified based on the composite criteria of investment in plant and machinery and turnover. The limit of the medium unit is revised upwards to Rs. 50 Crore of investment and Rs. 250 Crore turnover.
  • As part of the new definition of MSME, exports will not be counted in terms of turnover for any enterprises whether micro, small or medium.
  • The Government has introduced a new composite formula of classification of MSME. Accordingly, the ministry has removed the difference between the definition of manufacturing-based MSMEs and service-based MSMEs.The existing criterion of the definition of MSME is based on the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 and it was different for manufacturing and services units.
  • The other change that has been introduced is that the turnover of the sector will define an MSME. So far, MSMEs were defined based on their scale of investments. The investments will not characterize an MSME, but the turnover will define an MSME.

New Definition of MSME

The recent changes in the definition of micro, small, and medium-sized enterprises (MSME) made as a part of the Atmanirbhar Bharat Abhiyaan relief package and now the investment and turnover figures were changed to larger values as indicated below. MSMEs are defined based on the criteria of investment in plant and machinery and turnover.

Composite Criteria: Investment in Plant / Machinery
Sl.NoType of EnterprisesInvestment in Plant and Machinery or EquipmentTurnover
1Micro enterprisesLess than Rs.1 CroreLess than Rs.5 Crore
2Small enterprisesLess than Rs.10 CroreLess than Rs.50 Crore
3Medium enterprisesLess than Rs.50 CroreLess than Rs.250 Crore

Reason for Revised Criteria for Classification of MSME

  • The reason for the revised definition and criteria of the MSME is to strengthen the MSME and for its growth.
  • Particularly, the provision of excluding the exports from the counting of turnover is to encourage the MSMEs to export more and more without fearing to lose the benefits of an MSME unit.
  • By encouraging the exports from India, the Government is planning to enhance more growth and economic activity and creation of jobs.

Revised MSME definition – The Atmnirbhar Bharat package

After 14 years since the MSME Development Act, a revision in MSME definition was announced in the Atmnirbhar Bharat package on 13.05.2020 to bring more units under the purview of the schemes announced. According to this package, the composite criteria for the definition of MSME are the investment and turnover; both the investment and the turnover limit have been revised upwards. The distinction between service and the manufacturing sector has also been eliminated.

  • The limit of the Micro units (both manufacturing and services) were increased to Rs. 1 Crore investment and Rs. 5 Crore turnover.
  • Similarly, the limits of the small unit also increased to Rs. 10 Crore of investment and Rs 50 Crore of turnover.
  • The limits of the medium enterprises were increased to Rs. 20 Crore of investment and Rs. 100 Crore turnover.

For better understanding go through the table attached here:

Composite Criteria: Investment in Plant / Machinery and Turnover
Sl.NoType of EnterprisesInvestmentTurnover
1Micro enterprisesLess than Rs.1 CroreLess than Rs.5 Crore
2Small enterprisesLess than Rs.10 CroreLess than Rs.50 Crore
3Medium enterprisesLess than Rs.20 CroreLess than Rs.100 Crore

Know more the Highlights of Atmanirbhar Bharat Abhiyaan Economic Package

The old definition of MSME – MSMED Act, 2006

The existing criterion of definition of Ministry of Micro, Small and Medium Enterprises is based on the Micro, Small, and Medium Enterprises Development (MSMED) Act. The act came into existence in 2006. The MSMEs are classified based on the investment in plant and machinery and it was different for manufacturing and services units. Following the MSMED Act, 2006 the Micro Small and Medium Enterprises (MSME) enterprises are classified into the following two types.

  • Manufacturing enterprises – The enterprises which engaged in the manufacturing or production of goods are known as manufacturing enterprises
  • Service enterprises – The units which engaged in providing or rendering services are stated as service enterprises
Composite Criteria: Investment in Plant and Machinery
Sl.NoType of EnterprisesManufacturing enterprisesService enterprises
1Micro enterprisesLess than or Equal to Rs.25 LakhsLess than or Equal to Rs.10 Lakhs
2Small enterprisesRs.25 lakhs to Rs.5 CroreRs.10 lakhs to Rs.2 Crore
3Medium enterprisesRs.5 Crore to Rs.10 CroreRs.2 Crore to Rs.5 Crore

 

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