What is MSME ? Who can apply for MSME registration? & benefits of MSME Registration ?

Guide to the MSMED Act, 2006 in India

The Government of India has legislated and enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on June 16, 2006. With the passing of Micro, Small and Medium Enterprises Development Act 2006, a standard shift has taken place to include services in the definition of Micro, Small and Medium Enterprises and simultaneously extend the capacity to support Medium Enterprises. The article studies Definition of terms related to Micro, Small and Medium Enterprises in Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, Investments and Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, Examples of enterprises engaged in providing or rendering services in accordance with Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, Guidelines referring to Micro, Small and Medium Enterprises Development (MSMED) Act, 2006,Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015 and Central Government and Investment Limits related to Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015.

Definition of MSME as per MSMED Act, 2006

The Micro, Small and Medium Enterprises Development Act, 2006 defines the Micro, Small and Medium Enterprises on the basis of:

1. Investment in plant and machinery for those engaged in fields of manufacturing or production, the processing/preservation of goods, and
2. Investment in equipment for enterprises engaged in the provision or rendering of services.

The Micro, Small and Medium Enterprises Development Act, 2006 advocates the provision of marketing assistance, infrastructural facilities and backward as well as forward linkages to all Micro, Small and Medium enterprises.

According to Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 the investment made in plant and machinery is based on the original cost while excluding land and building and other items as specified by the Ministry of Small Scale Industries. Click here to know about the MSME eligibility criteria.

Examples of MSME Businesses

• Small road and water transport operators related to which original investment in vehicles are made up to Rs.200 lakhs under the priority sector.
• Small business for which original cost price of the equipment utilized for the reason of business is not in excess of Rs.20 lakhs.

Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015

• The Micro, Small and Medium Enterprises (Amendment) Bill, 2015 has proposed to alter the Micro, Small and Medium Enterprises Development Act, 2006. The Act permits the classification and regulation of enterprises as micro, small and medium enterprises. Further, the Bill aims to expand the allowance for investments undertaken for setting up plant and machinery in micro, small and medium enterprises.  Know more about the MSME Amendment Bill, 2015.

Who can apply for MSME registration?

MSME registration or Udyog Aadhaar can be obtained by any type of business entity. Proprietorships, Hindu Undivided Family, Partnership Firm, One Person Company, Limited Liability Partnership, Private Limited Company, Limited Company, Producer Company, any association of persons, co-operative societies or any other undertaking can obtain MSME registration in India. Small businesses having MSME registration enjoy various benefits under the Micro, Small and Medium Enterprises Development Act, 2006. Hence, it is recommended that all small businesses obtain MSME registration or Udyog Aadhaar after starting up.

Criteria for applying for MSME Registration

Only those entities that can be classified as a micro, small or medium enterprise under the following criteria as per the MSMED Act, 2006 is eligible to obtain MSME registration or Udyog Aadhaar:

In case of entities engaged in manufacturing or production of goods:

Micro enterprise: Any entity wherein the investment in plant and machinery does not exceed rupees twenty five lakhs.

Small enterprise: Any entity wherein the investment in plant and machinery does not exceed rupees five crores but also more than rupees twenty five lakhs.

Medium enterprise: Any entity wherein the investment in plant and machinery does not exceed rupees ten crores but also more than rupees five crores.

In case of entities engaged in providing or rendering of services:

Micro enterprise: Any entity wherein the investment in equipment does not exceed rupees ten lakhs.

Small enterprise: Any entity wherein the investment in equipment does not exceed rupees two crores but also more than rupees ten lakhs.

Medium enterprise: Any entity wherein the investment in equipment does not exceed rupees five crores but also more than rupees two crores.

When to apply for MSME registration?

Obtaining MSME registration or Udyog Aadhaar is not mandatory and is at the sole discretion of the Entrepreneur. However, it is recommended that most businesses obtain MSME registration right after registration to enjoy various benefits like protection against delayed payments under the MSMED Act.

MSME Registration Benefits

MSME stands for micro, small and medium enterprises, and these are the backbone of any developing economy. To support and promote MSMEs, the Government of India through various subsidies, schemes and incentives promote MSMEs through the MSMED Act. To avail the benefits under the MSMED Act from Central or State Government and the Banking Sector, MSME Registration is required.

MSME Registration

MSME stands for micro, small and medium enterprises and any enterprise that falls under any of these three categories. MSME enterprises are the backbone of any economy and are an engine of economic growth, promoting equitable development for all. MSME Enterprises are typically more labour intensive than large corporates and provide tremendous employment potential at a very low capital cost. MSME also share a major portion of industrial production and exports in India and play a pivotal role in the development of industrial economy.

Therefore, to promote and develop MSMEs; the MSMED Act of India facilitates promotion and development of enterprises through many incentives, schemes and subsidies. To obtain the benefits under MSMED Act, MSME Registration is a must and proprietorship firms, partnership firms, LLPs, Private Limited Company’s and Public Limited Companies can register.

BENEFITS OF MSME REGISTRATION

The MSME registration is not statutory. However, the MSME registration process in India has been conceptualized to provide maximum benefits to all types of enterprises. After registration, any enterprise becomes qualified to reap the benefits offered under the MSMED Act. Some of the benefits from Central Government include easy sanction of bank loans (Priority sector lending), lower rates of interest, excise exemption scheme, exemption under Direct Tax Laws and  statutory support such as reservation and the interest on Delayed Payments Act.

State Government and Union Territories also have complied their own package of facilities and incentives for MSMEs. Some of the benefits provided by State Govenement for MSMEs include development of specialized industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies and other support. Both the Centre and the State, whether under law or otherwise, target their incentives and support packages generally to units registered with them.

Banking Laws, Excise Law and the Direct Taxes Law have incorporated the word MSME in their exemption notifications. Therefore, the registration certificate issued by the registering authority is seen as proof of being MSME and is required to avail the benefits sanctioned for MSMEs.

Delay Payment Benefits:

MSME Payment Terms

The Government has placed enormous importance for the protection and development of Micro, Small and Medium Enterprises in the MSMED Act. And, did you know, micro, small and medium enterprises (MSME) enjoy protection from delayed payments under the MSMED Act? Read through this article to know more about delayed payments to MSME businesses.

Delayed Payments to Micro, Small and Medium Enterprises

If any micro or small enterprise that has MSME registration supplies any goods or services, then the buyer is required to make payment on or before the date agreed upon between the buyer and the micro or small enterprise. In case there is no payment date on the agreement, then the buyer is required to make payment within fifteen days of acceptance of good or services. Further, in any case, a payment due to a micro or small enterprise cannot exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Penal Interest on Delayed Payment to MSME Enterprise

In case of failure by the buyer to make payment on time, the buyer is required to pay compound interest with monthly interest rests to the supplier on that amount from the agreed date of payment or fifteen days of acceptance of goods or service. The penal interest chargeable for delayed payment to a MSME enterprise is three times of the bank rate notified by the Reserve Bank of India.

The penal interest paid by the buyer or payable by the buyer is not allowed as a deduction under the Income Tax Act, making the burden, even higher.

Requirement to Disclose in Annual Statement

In case a buyer is required to get the annual accounts audited, then it is the responsibility of the buyer to disclose the following facts in the annual statement.

• The principal amount and interest due thereon remaining unpaid to any micro or small supplier at the end of the accounting year;
• The amount of interest paid by the buyer and the amount of delayed payments made by the buyer;
• The amount of delayed payment interest due and payable;