How The New Definition Of The MSME Sector Benefits Your Business

Micro, Small, and Medium enterprises (MSMEs) have consistently fostered entrepreneurship and generated lower-cost employment opportunities. It has emerged as an extremely vibrant sector of the Indian economy in the last five years. From July 1st, 2020, the Union Cabinet has officially revised the definition of MSMEs based on investment requirements and annual turnover.

This article highlights how the MSME’s new definition benefits your business.

Redefining The MSME Sector

According to the earlier definition, a business with an investment amount of up to INR 25 lakhs was considered a micro business. Similarly, businesses with an investment amount of up to INR 5 crore and INR 10 crores were considered small and medium enterprises, respectively.

Now, the revised MSME definition includes:

• Businesses with up to INR 1 crore investments and a turnover of less than INR 5 crores are considered the micro-enterprises
• Businesses with up to INR 10 crore investments and a turnover below INR 50 crores are considered small enterprises
• Businesses with up to INR 50 crore investments and a turnover of less than INR 250 crores are considered the medium enterprises

Thus, the new definition suggests even with an increased turnover, many businesses will fall under MSMEs. This reform opens the gate for government subsidies, and the tax benefits available to MSMEs will now extend to more businesses in the country.

According to the Union Minister, Mr Nitin Gadkari, the new MSME classification could help create five crore job opportunities in the sector in the next five years. Another motive behind the MSME definition revision was to end the difference between manufacturing and service industries, which was prominent in the earlier MSME structure.

Availability Of MSME Loans

MSMEs looking to acquire funds can benefit from the new definition of MSMEs. The government has special provisions and provides several benefits to MSMEs looking for loans. A few government schemes offer collateral-free loans, better interest rates, and other loan subsidies.

For instance, by encouraging first-generation entrepreneurs to enhance their self-employment potential, the government provides these key benefits:

• Credit guarantee for collateral-free loans up to INR 2 crores and without a third-party guarantee
• Guarantee coverage ranges from 85% (Micro Enterprise up to Rs 5 lakhs) to 75% (others)
• 50% coverage for retail activities

This is just the tip of the iceberg of the MSME benefits. The importance MSMEs hold in the Indian economy is immense. Your businesses need an MSME/Udyam certificate to benefit from different government schemes.

Benefits Of Registration As MSME

Registering your business as an MSME (Udyam) can provide a variety of benefits, some of which include:

• Easy, collateral-free financial help from banks
• Government initiatives from time to time for the MSMEs development
• Various benefits on bank interest, taxes, and debt servicing
• MSMEs also have to pay a lower fee for trademark registration

How Will The MSME Sector’s New Definition Benefit Your Business?

The new definition of MSMEs has increased the investment quota, which has also contributed to the expansion of SMEs. The Indian government has given several benefits to facilitate the operation of such companies. Some of them include

1. GST Exemption

GST Council of India has doubled the GST limit for the MSME sector to INR 40 lakhs from the previous INR 20 lakhs limit. GST registration is not compulsory for small businesses with an annual turnover below INR 40 lakhs.

2. ISO Reimbursement

The ISO MSME redemption system has been extended to support MSMEs' search for ISO certification. This certification is necessary to standardise products and meet international quality standards. The expansion of this program allows for one-time reimbursement, especially for small businesses that already have ISO 14001/ISO 9000 certification.

Avail Of MSME Loans From IIFL Finance

The introduction of the MSME sector has been a blessing to budding first-generation entrepreneurs, and IIFL Finance has been at the forefront of providing such loans instantly. IIFL Finance offers loans to MSMEs for small financial requirements. The loan procedure is 100% online, from application to disbursals.

You can get collateral-free loans without having to visit any branch. Your loan amount gets disbursed within 48 hours with competitive interest rates and affordable EMI repayment options.

Frequently Asked Questions

Q.1: Why was the MSME definition revised?
Ans: One of the main motives behind redefining MSMEs was to end the difference between manufacturing and service industries, which was prominent in the earlier MSME structure.

Q.2: What is the MSME's new definition?
Ans: According to the new definition:
• Micro Businesses include up to INR 1 crore investments and a turnover of less than INR 5 crores
• Small Businesses include up to INR 10 crore investments and a turnover below INR 50 crores
• Medium Businesses include up to INR 50 crore investments and a turnover of less than INR 250 crores