Taxmann's MSME Ready Reckoner

Contents 3$*(

Micro Enterprises Reckoner

I-11

Small Enterprises Reckoner

I-15

Medium Enterprises Reckoner

I-19

MSME Reckoner 1 - Turnover-Limit Linked compliances/ exemptions for a private company

I-23

MSME Reckoner 2 - Turnover-Limit Linked compliances/ exemptions for MSME which is a limited liability partnership

I-27

MSME Reckoner 3 - Turnover-Limit Linked compliances/ exemptions for MSME which is a traditional/general SDUWQHUVKLS ¿UP

I-33

MSME Reckoner 4 - Turnover-limit linked compliances/ exemptions for MSME which is individual/HUF

I-39

MSME Reckoner 5 - Turnover-limit linked compliances/ exemptions for MSME which is a Public Company

I-46

DIVISION ONE MSMEs - DEFINITION, CLASSIFICATION AND REGISTRATION Draft National Policy for MSME in India & Covid-19 relief package for MSMEs Chapter 1 :KDW LV WKH QHZ GH¿QLWLRQ RI ³0LFUR (QWHUSULVHV´ ³6PDOO (QWHUSULVHV´ DQG ³0HGLXP (QWHUSULVHV´" I-5

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Chapter 2 +RZ WR FRPSXWH WKH LQYHVWPHQW "

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Chapter 3 +RZ WR FRPSXWH WXUQRYHU

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Chapter 4 &ODVVL¿FDWLRQ RI 060(V EDVHG RQ QHZ FRPSRVLWH FULWHULD ZLWK LOOXVWUDWLRQV DQG FDVH VWXGLHV

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Chapter 6 +RZ DQG ZKHQ 060(V ZLOO EH UHFODVVL¿HG

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Chapter 7 :KDW LV µPDQXIDFWXULQJ¶ µSURGXFWLRQ¶ 060( DQG ZKDW LV µVHUYLFH 060(¶ "

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DIVISION TWO BENEFITS TO REGISTERED MSMEs Chapter 7A %HQH¿WV IURP 060( )XQG

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Chapter 8 :KDW DUH WKH EHQHILWV DYDLODEOH WR UHJLVWHUHG 060(V XQGHU 060(' $FW LQ UHVSHFW RI SURWHFWLRQ UHPHGLHV DJDLQVW GHOD\HG SD\PHQWV E\ EX\HUV

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Chapter 9 )DFWRULQJ 75H'6 7UDGH 5HFHLYDEOHV 'LVFRXQWLQJ 6\VWHP

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Chapter 10 :KDW RWKHU EHQH¿WV DYDLODEOH WR UHJLVWHUHG 060( XQGHU &HQWUDO 6FKHPHV "

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DIVISION THREE BENEFITS TO SMALL BUSINESSES, WHETHER REGISTERED MSMEs OR NOT Chapter 13 %HQH¿WV DYDLODEOH WR 6PDOO %XVLQHVVHV XQGHU WKH ,QFRPH WD[ $FW

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Chapter 23A 0LQXWHV RQOLQH ORDQ DSSURYDO IRU 060(V

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DIVISION FOUR LEGAL FORMS OF ORGANISATION MSMEs CAN ADOPT AND PROS AND CONS OF CHOICE OF VARIOUS LEGAL FORMS Chapter 24 :KDW OHJDO IRUPV RI RUJDQLVDWLRQV FDQ 060(V DGRSW

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Chapter 25 6ROH SURSULHWRUVKLS

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Chapter 31 /HJDO IRUPV RI RUJDQLVDWLRQ WKDW DUH VXLWDEOH IRU PLFUR HQWHUSULVHV

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Chapter 32 5HJLVWUDWLRQ DV PLFUR HQWHUSULVH

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DIVISION SIX SMALL ENTERPRISES Chapter 33 'H¿QLWLRQ RI VPDOO HQWHUSULVHV

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Chapter 35 5HJLVWUDWLRQ DV VPDOO HQWHUSULVH

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DIVISION SEVEN MEDIUM ENTERPRISES Chapter 36 'H¿QLWLRQ RI PHGLXP HQWHUSULVHV

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Chapter 37 /HJDO IRUPV RI RUJDQLVDWLRQ WKDW LV VXLWDEOH IRU PHGLXP HQWHUSULVHV

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Chapter 40 %HQH¿WV WR '3,,7 UHFRJQLVHG VWDUW XSV XQGHU 6WDUW XS ,QGLD 6FKHPH

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APPENDICES APPENDIX 1 :

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WHAT IS THE NEW DEFINITION OF “MICRO ENTERPRISES”, “SMALL ENTERPRISES” AND “MEDIUM ENTERPRISES”?

1.0 Backdrop The old definition and classification of Micro, Small and Medium Enterprises (MSMEs), applicable from 02.10.2006 to 30.06.2020, was based on ceilings on investment in plant and machinery for enterprises in the manufacturing sector and on ceilings on investment in equipment in services sector. The investment ceilings were fixed way back in 2006 and were not adjusted for inflation. These outdated investment ceilings not adjusted for inflation discouraged MSMEs from undertaking new investments in plant and machinery or equipment for fear of losing the MSME status due to investment limits being exceeded. Government of India has notified new definitions and classification criteria of MSMEs vide Notification No. S.O. 2119(E), dated 26.06.2020 (hereafter referred to as the New MSME Notification or simply as NMN for brevity sake).

The NMN provides as under:

Definition and classification of MSMEs based on composite criteria of investment and turnover (Para 1 of NMN ) [Chapter 1 and Chapter 4]

Calculation of investment in plant and machinery or equipment (Para 4) [Chapter 2]

Calculation of turnover (Para 5) [Chapter 3]

Clubbing of investment and turnover of enterprises with distinct GSTINs but these GSTINs are all linked to single PAN (Para 3) [Chapter 2 and Chapter 3] 41

Para 1.0

DIV. 1 : MSMEs - DEFINITION, CLASSIFICATION & REGISTRATION

42

Becoming micro, small or medium Enterprise (Para 2) [Chapter 5]

Registration process (Para 5) [Chapter 5]

Updation of information and transition period in classification (Para 8) [Chapter 5]

Cancellation of Udyam registration (Para 9) [Chapter 5]

Registration of existing enterprises (Para 7) [Chapter 5]

Facilitation and grievance redressal of enterprises (Para 9) [Chapter 5]

Reclassification if investment or turnover falls below the floor set for small or medium category (Para 3) [Chapter 6]

Reclassification if investment or turnover exceeds ceiling stipulated for a category (Para 3) [Chapter 6]

The NMN has not only revised upwards the investment limits substantially but also changed the method of computing investment limits from original cost basis to net investment i.e. depreciated cost basis. The investment limit in NMN is in terms of "Net investment in plant and machinery or equipment". It is not the original investment or cost of plant and machinery or equipment but the depreciated cost of plant and machinery or equipment with reference to ITRs filed. Only for new enterprises without prior ITRs filed, the net investment will be the original cost or purchase invoice value of plant and machinery or equipment. A noteworthy point is depreciated value as per ITRs is reckoned by charging rates of depreciation as per Income Tax Rules which rates are higher than the commercial rates of depreciation given in Schedule II of the Companies Act, 2013 for instance. The net investment or depreciated cost as per ITR will be lower than the depreciated cost as per audited books of account/balance sheet for companies.

This will ensure that much larger number of enterprises get included in definition of MSME and there is no disincentive to invest for fear of losing MSME status due to investment limit being exceeded. An existing MSME, with an whose plant and machinery or equipment cost Rs. 50 crores over the years and having written down value of Rs. 10 crores as per ITR filed, can invest Rs. 40 cr in new plant and machinery without losing MSME status and will be regarded as medium enterprise. Under the old system of reckoning investment limit with reference to original cost, investment in plant and machinery would be Rs. 50 crores even under the new definition under NMN and any further investment would result in 50 cr. limit being exceeded and enterprise going out of MSME

43

Para 1.1

CH. 1 : DEFINITION OF MICRO, SMALL ENTERPRISES

fold. NMN excludes export turnover in computing turnover limit. This will incentivise MSMEs to export more and grow by exporting more and more without fear of exceeding turnover limit and losing MSME status thereby.

1.1 What is the definition for MSMEs? The new definition of MSME, applicable with effect from 01.07.2020, is based on the composite criteria of turnover limits and limits of investment in plant and machinery or equipment. The same limits apply to both manufacturing enterprises and service enterprises.

The following Table shows the classification of MSMEs into micro, small and medium categories based on various combinations of situations as regards net investment in plant and machinery or investment and net turnover: Net turnover Net turnover Net turnover does not ex- exceeds Rs. 5 exceeds Rs. ceed Rs. 5 cr cr but not Rs. 50 cr but not 50 cr Rs. 250 cr Net investment in plant and machinery or equipment does not exceed Rs. 1 cr Net investment in plant and machinery or equipment exceeds Rs. 1 cr but not Rs. 10 cr Net investment in plant and machinery or equipment exceeds Rs. 10 cr but not Rs. 50 cr Net investment in plant and machinery or equipment exceeds Rs. 50 cr

Micro

1

2

Small

Small

3

Net turnover exceeds Rs. 250 cr 4

----Out of MSME fold.. large Enterprise

Small

Medium

5

9

13

Out of MSME fold.. large enterprise

6

Small

Medium

10

14

Out of MSME fold.. large Enterprise

Medium

Medium

7

11

15

Out of MSME fold.. large enterprise

Out of MSME fold.. large Enterprise

8

12

Out of MSME fold.. large enterprise

16

Out of MSME fold.. large enterprise

Para 1.1

DIV. 1 : MSMEs - DEFINITION, CLASSIFICATION & REGISTRATION

44

Notes: 1. In the above table cell No. 1 represents a situation where net investment in plant and machinery of an enterprise does not exceed Rs. 1 crore and net turnover does not exceed Rs. 5 crores and so on.

2. Investment in plant and machinery or equipment means “the net investment in plant and machinery or equipment” (net of depreciation as per IT Act and IT Rules) and not original cost or book value (See Chapter 2) 3. Net Turnover means Total turnover less export turnover. (See Chapter 3) 4. If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and shall be placed in the next higher category.

5. No enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.

6. All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.

SUMMARY: Category of MSME enterprise

Sector

New composite classification criteria of investment and turnover applicable with effect from 01.07.2020 (investment reckoned on WDV/ depreciated cost/net investment basis as per ITRs filed) and turnover = net turnover i.e. net of export turnover)

Micro Enterprise

Manufacturing

Net investment in plant and machinery or equipment d Rs. 1 crore and net turnover d Rs. 5 crores

Small Enterprise

Manufacturing

Net investment in plant and machinery or equipment d Rs. 10 crores and net turnover d Rs. 50 crores

Medium Enterprise

Manufacturing

Net investment in plant and machinery or equipment d Rs. 50 crores and net turnover d Rs. 250 crores

45

CH. 1 : DEFINITION OF MICRO, SMALL ENTERPRISES

Category of MSME enterprise

Sector

Para 1.2

New composite classification criteria of investment and turnover applicable with effect from 01.07.2020 (investment reckoned on WDV/ depreciated cost/net investment basis as per ITRs filed) and turnover = net turnover i.e. net of export turnover)

Micro Enterprise

Services

Net investment in plant and machinery or equipment d Rs. 1 crore and net turnover d Rs. 5 crores

Small Enterprise

Services

Net investment in plant and machinery or equipment d Rs. 10 crores and net turnover d Rs. 50 crores

Medium Enterprise

Services

Net investment in plant and machinery or equipment d Rs. 50 crores and net turnover d Rs. 250 crores

1.2 Is satisfying the above composite criteria of investment and turnover sufficient to qualify as MSME and avail the benefits under the MSMED Act? Or is any registration needed to be recognised as MSME under the said Act? Para 2 of the NMN deals with “becoming a micro, small or medium enterprise” and provides as under: (1) Any person who intends to establish a micro, small or medium enterprise may file Udyam Registration online in the Udyam Registration portal (www.udyamregistration.gov.in). Filing is on self-declaration basis. There is no requirement to upload documents, papers, certificates or proof.

(2) On registration, an enterprise (referred to as “Udyam” in the Udyam Registration portal) will be assigned a Permanent Identity Number to be known as “Udyam Registration Number”.

(3) An e-certificate, named “Udyam Registration Certificate” will be issued on completion of the registration process.

Para 6 of the NMN deals with registration process and provides as under: (1) The form for registration shall be as provided in the Udyam Registration portal.

(2) There will be no fee for filing Udyam Registration.

(3) Aadhaar number shall be required for Udyam Registration.

(4) The Aadhaar number shall be

of the proprietor in the case of a proprietorship firm,

Para 1.2

DIV. 1 : MSMEs - DEFINITION, CLASSIFICATION & REGISTRATION

46

of the managing partner in the case of a partnership firm and of a karta in the case of a Hindu Undivided Family (HUF).

(5) In case of a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust, the organisation or its authorised signatory shall provide its GSTIN and PAN along with its Aadhaar number.

(6) In case an enterprise is duly registered as an Udyam with PAN, any deficiency of information for previous years when it did not have PAN shall be filled up on self-declaration basis.

(7) No enterprise shall file more than one Udyam Registration. Any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration.

(8) Whoever intentionally misrepresents or attempts to suppress the self-declared facts and figures appearing in the Udyam Registration or updation process shall be liable to such penalty as specified under section 27 of the MSMED Act. (9) In case of any proprietorship enterprise not registered under any Act or Rules of the Central Government or the State Government, the proprietor may use his or her PAN for registration of the enterprise in the Udyam Registration portal and for all other types of enterprises PAN shall be mandatory.

Para 7 of the NMN deals with registration of existing enterprises and provides as under: (1) All existing enterprises registered under EM±Part-II or UAM shall register again on the Udyam Registration portal on or after the 1st day of July, 2020. The deadline for migration from EM-II/UAM to Udyam is 30.06.2022.

If EM-II and UAM enterprises do not migrate to Udyam on or before 30.06.2022, they would be treated as unregistered till they file Udyam Registration.

(2) All enterprises registered till 30th June, 2020, shall be re-classified in accordance with this notification.

(3) The existing enterprises registered prior to 30th June, 2020, shall continue to be valid only for a period up to the 31st day of March, 2021. [This period was extended to 30.06.2022].

(4) An enterprise registered with any other organisation under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.

MSME Ready Reckoner AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE

: : : : : : :

TAXMANN TAXMANN MAY 2022 3rd Edition 9789356220546 782 PAPERBACK

Rs. : 1795 | USD : 58

Description Micro Small & Medium Enterprises (‘MSME’) Ready Reckoner is a comprehensive book on laws governing MSMEs in India. It provides an analysis of all the provisions of the MSME Act, 2006 in an easy-to-read FAQ format, along with relevant Circulars & Notifications, illustrations, case studies, etc.

This book is a handy referencer for MSMEs and professionals associated with the MSME sector.

This book is divided into eight divisions, namely: ·

MSMEs – Definition, Classification and Registration

·

Benefits to Registered MSMEs

·

Benefits to small businesses, whether registered MSMEs or not

·

Legal forms of organisation MSME can adopt and pros & cons of choice of various legal forms

·

Micro Enterprises

·

Small Enterprises

·

Medium Enterprises

·

Start-Ups

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