Everything You Need To Know About Investment And Turnover Calculation In MSME

The Micro, Small, and Medium Enterprises (MSME) sector makes a huge contribution towards the development of the Indian economy. Still there are a lot of issues that the MSME sector is facing.

In 2020, to revive the pandemic-hit MSME sector the government raised the threshold limit of investment and turnovers to qualify as MSMEs. The new definition of MSMEs is based on the annual turnover and net investments in plants, machineries, and other equipment essential for running the business.

The new definition of MSME:

• A business (manufacturing industry/ wholesale industry/ retail industry/ service industry) can be classified as “micro” enterprise, if its investment is less than Rs. 1 crore and its annual turnover is below Rs. 5 crores.
• A business can be classified as “small” if its net investment ranges between Rs.1 crore and Rs.10 crores and its annual turnover ranges between Rs. 5 crores and Rs. 50 crores.
• To qualify for “medium” enterprise, a business should have an annual turnover between Rs. 50 crores and Rs. 250 crores and a net investment between Rs. 10 crores and Rs. 50 crores.

The new classification includes both goods-based and service-based businesses.

Criteria For Calculation Of Investment And Turnover In MSME

The Ministry of Micro, Small, and Medium Enterprises officially announced a composite criterion of investment and turnover to classify all enterprises as micro, small or medium.

• It also states that if an enterprise exceeds the specified ceiling limit for its present category, in either of the two criteria, it will cease to exist in that category. So, if the net investment of a company crosses the specified limit, it will be placed in the next higher category even though the annual turnover is within the limit.
But it must be noted that an enterprise shall be placed in the lower category only if both the criteria of investment and turnover goes below the ceiling limits specified for its present category.

• All companies with a Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) will be collectively treated as a single enterprise. As a result the aggregate values of the turnover and investment for all of the entities shall be considered for deciding the category as micro, small or medium enterprise.

Calculation Of Investment In Plant And Machinery Or Equipment

The calculation of investment in plant and machinery or equipment of an enterprise will be as follows-

• The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.
• Plant and machinery or equipment will have the same implication and meaning as ‘plant and machinery’ mentioned in the Income Tax Act, 1961. It includes only tangible assets excluding land and building, furniture and fittings.
• In case of a new enterprise, the investment will be based on self-declaration of the promoter of the enterprise. But this relaxation shall end after the 31st March of the financial year after which the enterprise must file its first ITR.
• For a new enterprise with no prior ITR, the purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, must be made on a self-disclosure basis. Further, it shall not take into account the Goods and Services Tax (GST).
• The cost of certain items in the Explanation I to sub-section (1) of section 7 of the Act will be excluded from the calculation of the amount of investment in plant and machinery.

Turnover Calculation Of A Company

• Exports of goods or services or both, shall not be included while calculating the turnover of any enterprise.
• Every information about turnover and exports turnover of an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.
• For enterprises which do not have PAN, the turnover related figures will be considered on self-declaration basis up to 31st March 2021, after which PAN and GSTIN shall be mandatory.

Conclusion

Recently the government of India issued a fresh notification giving clarification on the computation of investment and turnover for MSMEs. Any business person who intends to start a micro, small or medium enterprise needs to file Udyam Registration online in the Udyam Registration portal.

Enterprises that already have Udyam Registration Number must update its information online on the portal along with its ITR, Returns and other required details. Failure to update such information can lead to the suspension of the enterprise status. After the successful submission of the documents, the enterprise classification shall be updated.

If you are looking for financial support to back your business enterprise, avail a business loan at IIFL Finance. All MSME business loans at IIFL Finance are a comprehensive product offered at attractive and affordable interest rates. Moreover, if funds are needed in minimal possible time, you can meet your requirement quickly by submitting an online loan request using the IIFL Finance mobile app.