New Reclassification rules for MSME sector



New Reclassification rules for MSME sector

Starting July 1, 2020, Indian MSME sector will see over Six crore (60 Million) Micro, Small and Medium enterprises undergo a new reclassification, something that has been long awaited since the roll out of The Micro, Small and Medium Enterprises Development (MSMED) Act 2006.

The new reclassification rules will drop the divide between enterprises in manufacturing and services sector and will pave way to a new composite formula of classification for such enterprises.  The Indian government believes the new definition of MSME units will strengthen them and enable growth.  The provision to exclude value of Exports turnover from the definition will boost the MSMEs to export higher without worrying about losing its MSME benefits.  This is anticipated to increase exports from India in times to come and enhance job creation.  The MSME sector is estimated to contribute almost 30% to India’s GDP and comprises almost 45% of its national exports.  Besides the sector also has generated 110 million jobs nationwide.

Let’s understand in brief aspects of the New MSME registration, classification of enterprises, investment and turnover estimation and transition process for existing MSME entities to the new norms:

How do I become a Micro, Small or Medium Enterprise?

Any person who intends to establish a micro small or medium enterprise may file UDYAM registration Online in the Udyam Registration Portal.  On Registration, an enterprise will be assigned a Permanent Identity Number to be known as Udyam Registration Number.  An E- Certificate, namely, “Udyam Registration Certificate” shall be issued on completion of the registration process.  GJM & Co. can help you with your MSME registration, schedule a call today.

What will be the New Classification for MSM Enterprises?

Type
Investment
Turnover

Min
Max
Min
Micro
N.A.
1 Crore INR
Does not Exceed 5 Crore INR
Small
>1 Crore INR
10 Crore INR
Does not Exceed 50 Crore INR
Medium
> 10 Crore INR
50 Crore INR
Does not Exceed 250 Crore INR

What is the new Composite Criteria for MSME Classification?

A Composite Criterion of investment and turnover shall apply for Classification of an enterprise as micro, small or medium.  All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and turnover and investment figures for all such entities shall be seen together and only the aggregate values will be considered for deciding the category as a micro, small or medium enterprise.  If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category.

Example of Composite Criteria

Turnover
Investment
Category
5 Crore INR
1 Crore INR
Micro
50 Crore INR
10 Crore INR
Small
250 Crore INR
50 Crore INR
Medium
5 Crore INR
10 Crore INR
Small
50 Crore INR
50 Crore INR
Medium

How do I calculate my Investment in Plant & Machinery (P&M) or Equipment (Eq.) for MSME classification purposes?

-       Calculation of investment in P&M and Eq. will be as per reported income tax return (ITR) of previous years.
-       For new Companies with no prior ITR, self-declaration by promoters of the enterprise and it will hold till 31st March of the financial year for which it files its first ITR.

How do I calculate my Turnover for MSME classification purposes?

-       Export of Goods/Services will be excluded from the Calculation of Turnover.
-       Information as regards Turnover and Exports turnover for an enterprise will be linked to Income Tax Act or CGST Act or GSTIN.
-       The Turnover of such enterprise which doesn’t have PAN will be considered on Self-declaration Basis up to 31st March 2021, thereafter PAN and GSTIN are mandatory.

How do I register my new business as an MSME unit?

The registration will now be possible through the new Udyam registration portal online.  All types of businesses, be it proprietorship, partnership, HUF, Company, LLP, Cooperative society, Service society, Trust can apply.

No enterprise shall file for more than one Udyam Registration:

Provided that any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration.  Intentional misrepresentations or suppression of self-declared facts appearing in Udyam registration shall be liable for penal action.

How do I register my existing Business under the new scheme?

All Existing enterprises shall register again on the Udyam Registration Portal on or after the 1st day of July 2020.  All Enterprises shall be reclassified as per new rules.  Existing enterprises registered before 30th June 2020 shall continue to be valid for a period up to 31st March 2021.  Any Enterprise which is registered with any other Organisation under MSME shall register itself under Udyam registration.

Schedule a Call today with our experts or write to them on info@gjmco.in for help.

Thanks & Best regards,
Knowledge Base team
GJM & Co.
Chartered Accountants
www.gjmco.in
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