Classification of MSMEs & Procedure for Udyam Registration

ENTERPRISE CLASSIFICATION

Based on the following requirements for Udyam registration, an enterprise shall be categorized as a micro, small, or medium enterprise, namely: 

(i) A microbusiness, with a revenue of no more than five crore rupees and an investment in plant, machinery, or equipment of no more than one crore rupees;

(ii) A small business with a revenue of no more than fifty crore rupees and an investment in plant, machinery, or equipment of no more than ten crore rupees; and

(iii) A medium-sized business, with a turnover of no more than 250 crore rupees and an investment in plant, machinery, or equipment of no more than 50 crore rupees.

ACHIEVING THE STATE OF A MICRO, SMALL, OR MEDIUM ENTERPRISE

1. Anyone with the intention of establishing a micro, small, or medium-sized business may submit an online Udyam Registration application through the Udyam Registration portal using self-declaration without the need to upload any supporting documentation.

2. A permanent identifying number known as the “Udyam Registration Number” will be given to an enterprise (referred to as “Udyam” in the Udyam Registration page) upon registration.

3. An electronic certificate known as a “Udyam Registration Certificate” will be distributed following the registration process’ conclusion.

INVESTMENT & TURNOVER COMPOSITE CRITERIA FOR CLASSIFICATION

1. To determine whether an organization is micro, small, or medium-sized, a composite criterion of investment and turnover must be used.

2. No company will be downgraded unless both its investment and turnover fall below the ceiling limits established for its present category. If an enterprise exceeds the ceiling limits specified for its current category in either of the two criteria of investment or turnover, it will cease to exist in that category and be moved to the next higher category.

3. The classification of an entity as a micro, small, or medium enterprise will only take into account the aggregate values for all units with Goods and Services Tax Identification Numbers (GSTINs) listed against the same Permanent Account Numbers (PANs). These units will all be treated as one enterprise and their turnover and investment figures will be viewed as a single number.

ASSESSMENT OF AN INVESTMENT IN EQUIPMENT AND/OR PLANT

1. The Income Tax Return (ITR) of the prior years submitted under the Income Tax Act, 1961 would be linked to the calculation of investment in plant, machinery, or equipment.

2. When a new business is involved and there is no prior ITR available, the investment will be based on the promoter’s self-declaration. This relaxation will end after the 31st March of the fiscal year in which the business files its first ITR.

3. The phrase “plant and machinery or equipment” of the business shall have the same meaning as that given to that term in the Income Tax Rules, 1962, which were created in accordance with the Income Tax Act, 1961, and shall comprise all tangible assets (other than land and buildings, furniture, and fixtures).

4. If the business is brand-new and has no ITR, the purchase (invoice) value of any machinery or equipment, whether it was bought new or used, shall be considered, minus Goods and Services Tax (GST), on a self-disclosure basis.

5. The price of a few goods listed in Explanation I of Section 7 of the Act’s sub-section (1) shall not be included in the calculation of the amount of investment in plant and machinery.

ASSESSMENT OF TURNOVER

• Exports of goods, services, or both must be disregarded when determining an enterprise’s turnover for classification, whether it is a micro, small, or medium-sized business.

• The Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN must be linked to information about an enterprise’s revenue and revenue from exports.

• For a period ending on March 31, 2021, the turnover-related figures of such an enterprise that does not have a PAN will be taken into consideration on a self-declaration basis; thereafter, a PAN and a GSTIN will be required.

ASSIGNMENT PROCESS

• The registration form must be completed using the Udyam Registration portal’s instructions.

• An Udyam Registration can be filed without cost.

• Udyam Registration will require an Aadhaar number.

• In the case of a proprietorship firm, the controlling partner in the case of a partnership firm, and a karta in the case of a Hindu Undivided Family (HUF), the Aadhaar number must belong to the proprietor.

• If the organisation is a company, limited liability partnership, cooperative society, society, or trust, the organization’s authorised signatory must also provide their PAN and GSTIN in addition to their Aadhaar number.

• Self-declaration forms must be filled out for any information that is lacking from earlier years when an enterprise wasn’t legally registered as an Udyam with a PAN.

• No business shall submit more than one Udyam Registration; nevertheless, an Udyam Registration may list or include a variety of operations, including manufacturing, services, or both.

• The punishment stipulated in Section 27 of the Act applies to anybody who intentionally provides false information or makes an effort to conceal self-reported facts and figures during the Udyam Registration or Updation procedure.

RECORDING OF EXISTING ENTITIES

• On or after July 1st, 2020, all currently registered firms under EM-Part-II or UAM must re-register on the Udyam Registration platform.
• All businesses that were registered up until June 30, 2020 must be reclassified in line with this notification.
• Existing businesses that were registered before June 30, 2020 will only retain their legal status through March 31, 2021.
• A business must register itself with Udyam Registration if it is registered with any other entity under the Ministry of Micro, Small and Medium Enterprises.

CLASSIFICATION INFORMATION UPDATION AND TRANSITION PERIOD

• An organization with an Udyam Registration Number is required to update all of its information, including the specifics of the ITR and the GST Return for the previous financial year, online in the Udyam Registration portal on a self-declaration basis.
• The firm will be held responsible for the suspension of its status if it fails to update the pertinent information within the time frame stipulated in the online Udyam Registration portal.
• The categorization of the firm will be updated based on the data provided or received from government sources, such as ITRs or GST returns.
• A communication concerning the status change will be made to the enterprise in the event of graduation (sliding up to a higher category) or reverse-graduation.
• An enterprise will continue its current status until the end of one year following the end of the registration year in the event of an upward change in terms of investment in plant, machinery, or equipment, or turnover, or both, and subsequent reclassification.

Suggested Read: Udyam Registration Online

Conclusion

Any company or organization in India that qualifies as a micro, small, or medium-sized enterprise (MSME) may submit an application for MSME registration. The investment made in plant and machinery or equipment for manufacturing or service operations determines a company’s eligibility for MSME registration. Businesses can gain from MSME registration in a number of ways, including easier access to credit, tax breaks, and government support.