Taxmann's MSME Ready Reckoner

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MICRO ENTERPRISES RECKONER

DEFINITION OF MICRO-ENTERPRISES

(A) What is the definition of ‘micro enterprises’?

Enterprises are classified as ‘micro’, ‘small’ and ‘medium’ based on a composite criteria of investment and turnover. An enterprise will be classified as ‘micro enterprise’ based on composite criteria as under:

Investment limit Investment in plant and machinery or equipment does not exceed ` 1 crore

Turnover limit Turnover does not exceed ` 5 crore

An enterprise is a ‘micro enterprise’, if it fulfils all the following conditions :

Condition (i) It is an ‘enterprise’;

Condition (ii) It is a manufacturing enterprise or service enterprise;

Condition (iii) Net investment in plant and machinery or equipment does not exceed ` 1 crore

Net investment = depreciated cost as per income-tax return of plant and machinery or equipment less cost of pollution control, R&D and industrial safety devices;

Condition (iv) Net turnover does not exceed ` 5 crore

Net turnover = Turnover of goods and services less exports of goods and services;

Condition (v) Enterprise has filed Udyam Registration. Udyog Aadhaar Memorandum (UAM)/Entrepreneur’s memorandum EM filed have no validity on or after 30.06.2022.

BENEFITS AVAILABLE TO REGISTERED MICRO ENTERPRISES

(B) What are the benefits available to registered micro enterprises?

 Protection against delayed payments by buyers of goods/services to a micro/small enterprise under section 15 of the MSMED Act and under section 43B(h) of Income-tax Act, 1961 [See Chapter 8]

 Interest on delayed payments (section 16 of the MSMED Act) [See Chapter 8]

 Time-bound settlement of payment-related disputes with buyers of goods/services through conciliation and arbitration by MSEFCs (Sections 18 to 21 of the MSMED Act) [See Chapter 8]

 TReDS-Trade Receivables Discounting System [See Chapter 9]

 Preference policies (preference to micro/small enterprises in respect of goods and services procured by Government Departments/ aided institutions/PSEs) notified by Central/State Government (section 11 of the MSMED Act) [See Chapter 10]

 Schemes for Improving manufacturing competitiveness of MSMEs [See Chapter 10]

 Assistance to MSMEs on IPRs [See Chapter 10]

 Credit Linked Capital Subsidy Scheme (CLCSS) [See Chapter 10]

 Procurement and Marketing Support Scheme (PMS) [See Chapter 10]

 Distressed Asset Fund - Subordinated Debt for Stressed MSMEs (DAF-SDSM)/Credit Guarantee Scheme for Subordinate Debt (CGSSD)

 Relief from forfeiture of bid/performance security for non-performance of contract during covid period [Chapter 11]

 Pre-Packaged Insolvency Resolution Process under Chapter III-A (sections 54A to 54M) of Insolvency & Bankruptcy Code (IBC) 2016

are available to Micro, small and Medium Enterprises which are companies or LLPs [See Chapter 12]

The above benefits/facilities are available under the MSMED Act to all registered micro enterprises or small enterprises whether they are manufacturing/production micro/small enterprises or service micro/ small enterprises.

In addition, a registered Micro enterprise can avail benefits mentioned in (D) below which are open to small businesses whether registered or not.

(C) What is meant by registered Micro enterprise?

A micro enterprise which has filed the (Entrepreneur’s Udyam Registration is a registered enterprise for availing the benefits as above. It does not matter whether the enterprise is registered or not under any law like the Indian Partnership Act, 1932 or the Companies Act, 2013 or the LLP Act, 2008.

(D) What are ‘informal Micro Enterprises’? What is formalisation of IMEs through Udyam Assist ?

IMEs are micro enterprises that are unregistered under Udyam because they may not have necessary documents for registration. Udyam Assist platform facilitates online registration of IMEs through Assist process for generation of Udyam Registration Number [Chapter 5A]

BENEFITS AVAILABLE TO MICRO ENTERPRISES, WHETHER REGISTERED OR NOT UNDER UDYAM

(E) What benefits available to micro enterprises whether registered under Udyam or not ?

The following benefits are available to micro enterprises whether registered or not and whether they satisfy the definition of micro enterprises or not:

 They can opt for Presumptive Taxation regime under sections 44AD [Chapter 13], 44ADA [Chapter 13] and 44AE [Chapter 13] of the Income-tax Act, 1961 whereby they can enjoy relaxation from compliances related to maintenance of accounts and audit and file a simple ITR form in ITR-4S.

 Exemption from compulsory tax audit under section 44AB of the Income-tax Act, 1961, for entities with turnover of ` 10 cr or less provided such entities transact 95% or more of their receipts and payments through cashless modes [Chapter 14]

 17.16% optional tax regime for without specified deductions/reliefs for new manufacturing companies irrespective of turnover (Section 115BAB of the Income-tax Act, 1961) [See Chapter 15]

 A company whose turnover does not exceed ` 400 cr. in a financial year is entitled to concessional rate of tax of 25% applicable to small and medium companies as per the Finance Act. [Chapter 16]

 Relaxations in compliances to small companies under Companies Act, 2013. [See Chapter 17]

 MUDRA scheme [See Chapter 18]

 PM Street Vendor’s Atma Nirbhar Nidhi (PM SVANidhi) : A Special Micro-Credit Facility for Street Vendors [Chapter 19]

 59 minutes online loan approval of business loans and MUDRA loans [Chapter 20]

SMALL ENTERPRISES RECKONER

DEFINITION OF SMALL ENTERPRISES

(A) What is the definition of small enterprises applicable with effect from 01.07.2020?

Enterprises are classified as ‘micro’, ‘small’ and ‘medium’ based on a composite criteria of investment and turnover. An enterprise will be classified as ‘small enterprise’ based on composite criteria as under:

Investment limit Investment in plant and machinery or equipment does not exceed ` 10 crore

Turnover limit Turnover does not exceed ` 50 crore

An enterprise is a ‘small enterprise’, if it fulfils all the following conditions :

Condition (i) It is an ‘enterprise’;

Condition (ii) It is a manufacturing enterprise or service enterprise;

Condition (iii) Net investment in plant and machinery or equipment does not exceed ` 10 crore

Net investment = depreciated cost as per income-tax return of plant and machinery or equipment less cost of pollution control, R&D and industrial safety devices;

Condition (iv) Net turnover does not exceed ` 50 crore

Net turnover = Turnover of goods and services less exports of goods and services; I-15

Condition (v) Enterprise has filed Udyam Registration. Udyog Aadhaar Memorandum (UAM)/Entrepreneur’s memorandum EM filed have no validity on or after 30.06.2022.

Category of MSME enterprise Sector New composite classification criteria of net investment and net turnover applicable with effect from 01.07.2020 as per Para 1(i) of the NMN

(1) (2) (3)

Small Enterprise Manufacturing Net Investment in plant and machinery or equipment (depreciated cost as per ITR) ≤ ` 10 cr and net turnover (i.e. total turnover less export turnover) ≤ ` 50 cr.

Small Enterprise Services Investment in plant and machinery or equipment (depreciated cost as per ITR) ≤ ` 10 cr and turnover (total turnover less exports turnover) ≤ ` 50 cr.

BENEFITS AVAILABLE TO REGISTERED SMALL ENTERPRISES

(B) What are the benefits available to registered small enterprises?

 Protection against delayed payments by buyers of goods/services to a micro/small enterprise under section 15 of the MSMED Act and under section 43B(h) of Income-tax Act, 1961 [See Chapter 8]

 Interest on delayed payments (section 16 of the MSMED Act) [See Chapter 8]

 Time-bound settlement of payment-related disputes with buyers of goods/services through conciliation and arbitration (Sections 18 to 21 of the MSMED Act) [See Chapter 8]

 TReDS-Trade Receivables Discounting System [See Chapter 9]

 Preference policies (preference to micro/small enterprises in respect of goods and services procured by Government Departments/aided institutions/PSEs) notified by Central/State Government (section 11 of the MSMED Act) [See Chapter 10]

 Schemes for Improving manufacturing competitiveness of MSMEs [See Chapter 10]

 Assistance to MSMEs on IPRs [See Chapter 10]

 Credit Linked Capital Subsidy Scheme [See Chapter 10]

 Procurement and Marketing Support Scheme (PMS) [ See Chapter 10]

 Distressed Asset Fund - Subordinated Debt for Stressed MSMEs (DAF-SDSM)/Credit Guarantee Scheme for Subordinate Debt (CGSSD)

 Relief from forfeiture of bid/performance security for non-performance of contract during covid period [Chapter 11]

 Pre-Packaged Insolvency resolution process under Insolvency & Bankruptcy Code, 2016 [Chapter 12]

The above benefits/facilities are available under the MSMED Act to all micro enterprises or small enterprises whether they are manufacturing/ production micro/small enterprises or service micro/small enterprises. In addition, a registered small enterprise can avail benefits mentioned in Item (E) of the Micro Enterprises Reckoner which are open to small businesses whether registered or not.

(C) What is meant by registered Small enterprise?

A small enterprise which has filed the Udyam Registration is a registered enterprise for availing the benefits as above.

It does not matter whether the enterprise is registered or not under any law like the Indian Partnership Act, 1932 or the Companies Act, 2013 or the LLP Act, 2008.

I-17 SMALL ENTERPRISES RECKONER

MEDIUM ENTERPRISES RECKONER

DEFINITION OF MEDIUM ENTERPRISES

(A) What is the definition of medium enterprises applicable with effect from 01.07.2020?

Enterprises are classified as ‘micro’, ‘small’ and ‘medium’ based on a composite criteria of investment and turnover. An enterprise will be classified as ‘medium enterprise’ based on composite criteria as under:

Investment limit Investment in plant and machinery or equipment does not exceed ` 50 crores

Turnover limit Turnover does not exceed ` 250 crores

An enterprise is a ‘medium enterprise’, if it fulfils all the following conditions :

Condition (i) It is an ‘enterprise’;

Condition (ii) It is a manufacturing enterprise or service enterprise;

Condition (iii) Net investment in plant and machinery or equipment does not exceed ` 50 crores;

Net investment = depreciated cost as per income-tax return of plant and machinery or equipment less cost of pollution control, R&D and industrial safety devices.

Condition (iv) Net turnover does not exceed ` 250 crores; Net turnover = Turnover of goods and services less exports of goods and services;

Condition (v) Enterprise has filed Udyam Registration. Udyog Aadhaar Memorandum (UAM) / Entrepreneur’s memorandum EM filed have no validity on or after 30.06.2022

BENEFITS AVAILABLE TO REGISTERED MEDIUM ENTERPRISES

(B) What are the benefits available to registered medium enterprises?

 Assistance to MSMEs on IPRs [See Chapter 10]

 Procurement and Marketing Support Scheme (PMS) [ See Chapter 10]

 Distressed Asset Fund - Subordinated Debt for Stressed MSMEs (DAF-SDSM)/Credit Guarantee Scheme for Subordinate Debt (CGSSD)

 Relief from forfeiture of bid/performance security for non-performance of contract during covid period [Chapter 11]

 Pre-Packaged Insolvency resolution process under Insolvency & Bankruptcy Code, 2016 [Chapter 12]

The above benefits/facilities are available under the MSMED Act to all medium enterprises whether they are manufacturing/production medium enterprises or service medium enterprises.

In addition, a registered medium enterprise can avail benefits mentioned in Item (E) of Micro Enterprises Reckoner which are open to small businesses whether registered or not.

(C) What is meant by registered Medium enterprise?

A medium enterprise which has filed the Udyam Registration is a registered enterprise for availing the benefits as above.

It does not matter whether the enterprise is registered or not under any law like the Indian Partnership Act, 1932 or the Companies Act, 2013 or the LLP Act, 2008.

MEDIUM ENTERPRISES RECKONER

It is mandatory for any person who intends to establish a medium enterprise engaged in manufacturing or production of goods to file Udyam Registration [Section 8(1)(c) of the MSMED Act, 2006]

Section 27(1) provides penalty for whoever intentionally contravenes or attempts or abets contravention of section 8(1). Such person shall be punishable—

(

a) in the case of the first conviction, with fine which may extent to ` 1,000.

(

b) in the case of second or subsequent conviction, with fine which shall not be less than ` 1,000. But which may extend to ` 10,000.

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:

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

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

u Calculation of turnover (Para 5) [Chapter 3]

u 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]

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

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

u Registration process (Para 5) [Chapter 5]

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

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

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

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

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

u 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 ` 50 crores over the years and having written down value of ` 10 crores as per ITR filed, can invest ` 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 ` 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

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:

Notes:

1. In the above table, cell No. 1 represents a situation where net investment in plant and machinery or equipment of an enterprise does not exceed ` 1 crore and net turnover does not exceed ` 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. An enterprise shall continue to avail of all non-tax benefits of the category (micro or small or medium) it was in before the re-classification, for the period of 3 years from the date of such upward change.

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. The enterprise will continue in its present category till the closure of the financial years and it will be given the benefit of the chuffed status only with effect from 1st April of the following financial year.

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 ≤ ` 1 crore and net turnover ≤ ` 5 crores

Enterprise Manufacturing Net investment in plant and machinery or equipment ≤ ` 10 crores and net turnover ≤ ` 50 crores

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)

Medium Enterprise Manufacturing Net investment in plant and machinery or equipment ≤ ` 50 crores and net turnover ≤ ` 250 crores

Micro Enterprise Services

Small Enterprise Services

Net investment in plant and machinery or equipment ≤ ` 1 crore and net turnover ≤ ` 5 crores

Net investment in plant and machinery or equipment ≤ ` 10 crores and net turnover ≤ ` 50 crores

Medium Enterprise Services Net investment in plant and machinery or equipment ≤ ` 50 crores and net turnover ≤ ` 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:

u of the proprietor in the case of a proprietorship firm,

u of the managing partner in the case of a partnership firm and

u 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 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.

From a conjoint reading of Paras 2, 6 and 7 of the NMN, it is clear that merely satisfying the above composite criteria of investment and turn-

over is NOT sufficient to qualify as MSME and avail the benefits under the MSMED Act. The heading of Para 2 “Becoming a micro, small or medium enterprise” seems to indicate that filing of Udyam Registration is essential for MSME enterprise to be recognised as such under the MSMED Act and to avail benefits [See Q.1.7, Q.1.8, Q.1.9 & Q.1.10 below] under that Act.

1.3 Whether the new definition and classification based on composite criteria applicable only to new enterprises established on or after 01.07.2020? Or does it apply to enterprises existing as on 30.06.2020 also?

The new definition applies to existing enterprises as on 30.06.2020 also. If existing enterprises are registered under Udyog Aadhaar or EM Part II, the same will be reclassified as per the new definition. The UAM/EM registration shall remain valid only till 30.06.2022. All existing enterprises registered under UAM/EM-II as on 30.06.2020 need to re-register under Udyam on or after 01.07.2020 before their UAM/EM registration expires on 30.06.2022.

If they do not migrate to Udyam on or before 30-06-2022, they would be treated as unregistered until they file Udyam Registration.

Section 8(1) of MSMED Act makes it compulsory for medium enterprises to file information memorandum (Udyam Registration). If a medium enterprise registered under UAM or EM fails to migrate to Udyam Registration on or before 30.06.2022 or if an enterprise which was out of MSME fold prior to 01.07.2020 and qualified as medium enterprise under NMN fails to file Udyam and before 30.06.2022, the contravention may attract fine under section 27(1) of the MSMED Act. Section 27(1) provides that whoever intentionally contravenes or attempts to contravene or abets the contravention of any of the provisions contained in sub-section (1) of section 8 or sub-section (2) of section 26 shall be punishable—

(

a) in the case of the first conviction, with fine which may extend to rupees one thousand; and

(

b) in the case of second or subsequent conviction, with fine which shall not be less than rupees one thousand but may extend to rupees ten thousand.

1.3A Is there a uniform definition of SMEs or small businesses for the purposes of all laws benefitting SMEs?

Unfortunately, No.

The new definition of MSMEs (micro, small and medium enterprises) as per the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as ‘the MSMED Act’) is based on composite criteria of investment limits and turnover limits. The new definition is applicable with effect from 01.07.2020. This definition stipulates a turnover limit of ` 250 crores for MSMEs eligible to register under MSMED Act and avail benefits under that Act. The old definition under the MSMED Act applicable upto 30.6.2020 did not stipulate any turnover limit. It only stipulated limits on investment in plant and machinery for manufacturing enterprises and limits on investment in equipment for service enterprises.

The small business universe or SME universe is vast and diverse ranging from street vendors to startups. They exist in formal sector as well as informal sector. Those existing in informal sectors do have some of the trappings of formal sector like street vendors or carts accepting payments through cashless means like PhonePe or Paytm. The universe of small businesses is not exhausted by the enterprises registered under the MSMED Act or eligible to register under that Act as per the definitions under that Act. Only manufacturing enterprises and service enterprises are eligible to be registered under that Act and avail benefits under that Act. There are activities which are neither manufacture nor services [See Q.5.11].

Start-ups are a special segment of the small and medium businesses sector defined under DPIIT notification as partnership firms, LLPs and private limited companies which are (i) DPIIT Recognised (ii) having turnover not exceeding ` 100 cr and (iii) not completed 10 years from date of incorporation. Irrespective of whether they register under the MSMED Act or not, DPIIT-recognised startups are entitled to benefits under the Startup India scheme. DPIIT-recognised startups which are LLPs or private limited companies are also entitled to various tax benefits under the Income-tax Act, 1961 [See Division 8].

Then, there are benefits available to small companies under the Companies Act, 2013 by way of relaxations in the compliance regime. Turnover limit for small company definition in Companies Act is ` 20 crores.

It may be noted that, while turnover limit for MSMEs has been increased to ` 250 cr for MSMED Act purposes, there has been no increase in turnover limit of ` 100 cr in DPIIT policy for startups.

Small and Medium Companies are entitled to a concessional tax rate of 25% after enjoying all tax benefits. The turnover limit for availing this

benefit is ` 400 crores and is available to SMEs irrespective of registration under MSMED Act [Chapter 16]. Likewise, enterprises with turnover up to ` 10 crores are entitled to exemption from mandatory tax audit under section 44AB if they transact 95% or more of their payments and receipts by cashless means [Chapter 14]. Small businesses are also entitled to opt for presumptive tax regime under section 44AD or 44ADA or 44AE of Income-tax Act and if they declare specified amount of profits they need not maintain accounts and get them audited under section 44AB of the Income-tax Act [Chapter 13].

Not only are turnover limits across laws but also the method of calculation of turnover limits differ. For the purposes of MSMED Act, turnover excludes export turnover for computing turnover limits of ` 5 cr, ` 50 cr and ` 250 cr. However, export turnover is not excluded for computing the turnover limits of ` 100 cr in DPIIT startup notification or turnover limit of ` 20 crores for small company definition in section 2(85) of the Companies Act or the ` 400 cr turnover limit for lower income-tax rates for small and medium companies or the ` 10 cr limit for exemption from tax audit under section 44AB of the Income-tax Act.

The definition of turnover also differs.

For DPIIT notification and small company definition, turnover as per profit and loss account is to be taken.

Turnover limit for section 44AB of Income-tax Act is to be reckoned as per section 145A(ii) of the Income-tax Act, 1961 and as per Income computation and Disclosure Standards.

1.4 Whether MSMEs should adopt any particular legal form of organisation to avail benefits under MSME Act?

No. There is no particular form of legal organisation to be adopted to be eligible for benefits under the MSMED Act. Benefits under MSMED Act will be available so long as the enterprise satisfies the investment and turnover limits as above and has filed Udyam Registration. It does not matter whether the enterprise is a proprietorship or partnership firm or a limited liability partnership (LLP) or a company or Hindu undivided family (HUF).

According to Notification No. SO 1642(E), dated 29-9-2006, an enterprise may be:

u proprietorship,

u Hindu undivided family,

u association of persons,

u co-operative society,

u partnership firm,

u company,

u undertaking, or

u any other legal entity

The term ‘any other legal entity’ used in Notification No. 1642 (E) is wide enough to cover limited liability partnership and formed and registered under the Limited Liability Partnership Act, 2008. Even Self-Help Groups can be considered as “enterprises”.

However, if MSME is a start up, it must be a partnership firm or LLP or a private limited company to avail benefits under DPIIT’s Start up Notification No. GSR 127(E), dated 19.02.2019 [hereinafter referred to as Latest Startup Notification (LSN)] [See Division 8; Chapter 36]

1.5 Whether street vendors will be regarded as MSMEs as per the revised definition ?

Street vendors, whether urban or rural, can register as retail traders on Udyam Registration (UR) portal. The benefits of Retail and Wholesale Trade MSMEs are to be restricted to priority sector lending only [OM 16/17/2020-P&G-Policy (E-19421), dated 9-8-2021, issued by Ministry of MSME, GOI].

1.6 Would the following qualify as MSMEs under the revised definition?

(i) individual practising CA, (ii) an individual professional photographer, (iii) plumbers, (iv) gardeners, (v) cobblers, (vi) puncture wallahs?

An individual service provider without an undertaking or establishment or concern is not an “enterprise” as defined in MSMED Act [See Q.1.5 above].

Thus, a CA firm or a CA having an office shall be an “enterprise”. An individual CA practising as such and not having any establishment will not be a “service enterprise”. A photography studio is a service enterprise. An individual professional photographer is not a service enterprise. It appears that cobblers, puncture wallahs, road-side tea vendors can register on Udyam portal as Retail Trade MSMEs.

MSME Ready Reckoner

AUTHOR : TAXMANN’S EDITORIAL BOARD

PUBLISHER : TAXMANN

DATE OF PUBLICATION : MAY 2023

EDITION : 4TH EDITION

ISBN NO : 9789357782647

NO. OF PAGES : 570

BINDING TYPE : PAPERBACK

Description

Micro Small & Medium Enterprises (‘MSME’) Ready Reckoner is a comprehensive book on laws governing MSMEs in India. It analyses 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

The Present Publication is the 4 th Edition and has been amended by the Finance Act 2023. This book is authored by Taxmann’s Editorial Board, with the following noteworthy features:

 [ New Definitions & Classification of MSMEs ] into Micro, Small and Medium enterprises based on composite criteria of investment and turnover

 [ Investment ] How to Compute Investment

 [ Turnover ] How to Compute Turnover

 [Udyam Registration] How to file Udyam Registration

 [Udyam Assist Registration] for informal micro enterprises

 [Promotion of Timely Payments by Buyers to Micro/Small Enterprises] u/s 43B(h) of the Income-tax Act, 1961 is included in this book

 [Vivad Se Vishwas I] scheme for providing reliefs to MSMEs from performance/bid security for non-performance of government contracts during COVID-19

 [Central Government Schemes] for MSMEs

 [Pre-Pack Insolvency Resolution Process] for debt-stressed corporate MSMEs

 [ Time-Bound Recovery of Dues by Micro and Small Enterprises through Samadhan Portal ] including the recent Supreme Court decision interpreting Chapter V of the MSMED Act

 [Online Loan Approval in 59 Minutes] for MSMEs

 [MUDRA Scheme] for funding the Non-corporate Small Business Sector (NCSBS)

 [TreDS] Trade Receivables Discounting System

 [ Ready Reckoner(s) ] ( subject-wise practical guide ) for the following:

 Micro Enterprises

 Small Enterprises

 Medium Enterprises

 [ MSME Reckoner on Turnover-Limit Linked Compliances/Exemptions ] for the following:

 Private Company

 Limited Liability Partnerships

 Tradition/General Partnership Firms

 HUFs/Individuals

 Public Company

Rs. 1595 | USD 51