The contribution of MSMEs in India has surged gradually over the past few years, its share in the All India Gross Domestic Product (GDP) rising from 27.3% in 2020-21 to 30.1% in 2022-23. While up to May 2024, the sector contributed approximately 46% to the country’s total exports. Moreover, the country has more than 6 crore registered MSMEs employing over 25 crore people.
The role of MSME is instrumental in driving economic growth, job creation, spearheading exports, and boosting India’s GDP. Recognizing and acknowledging their significance, the government of India has revised the MSME classification criteria from time to time. This was mainly done to help these enterprises evolve in this dynamic corporate landscape, access benefits such as loans and subsidies, and scale up their operations.
Let’s take a brief look at the registration, documentation, and classification of MSME of India, along with the process of calculating the investment and turnover of the enterprise.
What is MSME? In India, MSME stands for Micro, Small, and Medium Enterprise. Such companies are mainly involved in the production and processing of goods and services and constitute a major portion of the workforce. A key Indian legislation, the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, governs the promotion and development of such enterprises within the nation. The Ministry of MSME (MoMSME) is the apex body that is tasked with the role of administrating and formulating rules related to MSMEs.
In India, MSME registration is a completely online process and is based on self-declaration. To register, enterprises are required to register on the Udyam Registration portal, launched on 1st July 2020. The portal eliminates the need to submit documents, proof, certificates, or any other type of paper, simplifying business formalization. Once the enterprise successfully registers, they will be assigned a permanent identity number called the ‘Udyam registration number’. They will also receive an electronic certificate upon completion of the entire registration process.
The government of India introduced new classification criteria for the MSMEs effective from 1st April 2025. Before this, the companies (in the manufacturing and service sector) were categorized on the basis of investment in plant, machinery, and equipment. The classification allotted separate investment thresholds for each firm, which made these companies limit their investment to keep enjoying the benefits offered through MSME Registration. Here’s how the old classification categorized these companies:
| Enterprise | Investment in Plant and Machinery (Production and Manufacturing Industry) | Investment in Equipment by Services Industry |
|---|---|---|
| Micro | Not more than Rs. 25 Lakhs | Not more than Rs. 10 Lakhs |
| Small | More than Rs. 25 lakhs but not exceeding Rs. 5 Crores (25 Lakh – 5 Crore) | More than Rs. 10 lakhs but not exceeding Rs. 2 Crores (10 Lakh – 2 Crore) |
| Medium | More than Rs. 5 Crores but not exceeding Rs. 10 Crores (5 Crore – 10 Crore) | More than Rs. 2 Crores but not exceeding Rs. 5 Crores (2 Crore – 5 Crore) |
With the introduction of the new classification, announced in the Budget 2025, the government of India has revised the investment limit by almost 2.5 times and turnover limits by 2 times. Earlier the classification separated MSMEs into two categories namely the manufacturing sector and the service sector. This distinction now stands removed, and each MSME irrespective of the sector they operate in is classified as per their investment and annual turnover. The composite criteria have come into effect from 1st April 2025 and are as follows:
| Enterprise | Investment in Plant and Machinery | Annual Turnover |
|---|---|---|
| Micro | Not more than Rs. 2.5 Crore | Not more than Rs. 10 Crore |
| Small | Not more than Rs. 25 Crore | Not more than Rs. 100 Crore |
| Medium | Not more than Rs. 125 Crore | Not more than Rs. 500 Crore |
The following entities can obtain an MSME Registration in India:
Thus, regardless of the type of company or establishment, an entity can register itself as an MSME if it meets the MSME criteria and falls under its classification as per its investment and turnover.
In India, an MSME is known as Udyam (for this process) and its registration procedure is called MSME Udyam Registration. Upon successful registration of the enterprise, the government issues an udyam certificate and authorizes a business as MSME.
To initiate the MSME registration, applicants have to visit the portal (https://udyamregistration.gov.in/) designated for MSME udyam registration. It replaces the previous registration mechanism facilitated through UAM (Udyog Aadhar Memorandum). The portal accepts new entrepreneurs who haven’t registered as MSMEs before or filed EM-II (Entrepreneurs Memorandum Part-2).
Moreover, enterprises that have already been registered as MSME through UAM or registered through assisted filing are required to register again on the Udyam Registration Portal. The timeline provided for this was on or after 1st July 2020.
To secure an MSME Certificate, the applicants first have to visit the online Udyam Registration Portal. Visit the homepage and tap on the desired choice namely:
To initiate the process, pick any of the above-mentioned options and enter the Aadhar number to validate the information and generate an OTP. Moving ahead, the applicants have to enter PAN details by entering the type of organization and validate this as well. Then, the next step is to fill in all the required enterprise and personal details along with investment and turnover figures and data of the company.
Aadhar number necessary for registering the MSME has to of:
Registration of MSME through the Udyam portal does not require any application, registration, or other types of charges or fees. It is entirely a free-of-cost and paperless process.
Within the UAM (Udyog Aadhar Memorandum), the outdated registration mechanism, the enterprises were required to submit a long list of documents to avail government schemes and benefits offered to MSMEs. Udyog Aadhar in India requires submission of the following documents:
With the introduction of the new MSME Udyog Portal, the process is now entirely based on self-declaration. It means that no proof or documents are now necessary to register an MSME in India. The system will automatically fetch the turnover and investment details through GSTIN and PAN details submitted in the application. No enterprise should file more than one registration under Udyam. Every type of activity (either manufacturing, service, or both) should be added in one form only.
The calculation of investment in machinery and equipment by the applicant is assessed/ linked through the ITR (Income Tax Returns) of the preceding year. It means that the value of these assets declared through ITR will be used to find out whether the enterprise fulfills the eligibility criteria of MSME.
In case a new company is seeking MSME registration and whose previous ITR filings are not available, the investment will be determined through the self-declaration made by the promoter. For this, applicants can submit invoices for plant, machinery, or equipment whether it is bought first-hand or second-hand. The cost of certain items will not be considered under the determination of investment amount and exclude GST paid on these items.
For the calculation of turnover, the value of exported goods and services will not be considered. The value of this will be determined through the ITR filings or GSTIN and those who do not have PAN will have to make self-declaration for the same.
Micro, small, and medium enterprises registration offers a wide range of benefits to its owners. These benefits provide these enterprises with much-needed financial support, boost entrepreneurship, and promote innovation in their day-to-day operations.
One of the notable benefits of MSMEs is the accessibility of credit at cheaper and competitive rates. However, to avail of credit at subsidized rates, MSMEs are mandated to register on the Udyam portal and secure a Udyam certificate. Loans to these enterprises are available for as low as 1-1.5%, allowing them to improve their financial status, scale up their business, purchase advanced machinery, and act as a wheel in driving the nation towards unmatchable growth.
Enterprises who hold an MSME certificate are eligible for various schemes and initiatives run by the government of India. These entities can avail of collateral-free loans under the Credit Guarantee Scheme for MSEs, up to INR 20 Lakhs loan under Pradhan Mantri Mudra Yojana, and obtain credit to upgrade technology through Credit Linked Capital Subsidy Scheme, among others.
With the Udyam certificate, MSMEs become eligible to obtain credit from banks and financial institutions through their PSL program. Priority Sector Lending is an initiative started by the RBI (Reserve Bank of India) that mandates such institutions to allocate a portion of their loan portfolio to specific sectors, including MSMEs.
MSMEs can carry forward their MAR credit for 15 years which was earlier fixed at 10 years. MAR are tax levied on enterprises that earn significant profits but pay minimal or no taxes due to deductions and exemptions available to them. The extension offers MSMEs additional tax benefits and helps in their long-term success.
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