MSME Registration in India

MSME Registration in India

MSME stands for micro, small and medium enterprises, which was introduced in agreement with the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 by the Government of India. MSMEs are critical contributors to the country's socio-economic development. Thus they are the backbone of any economy and are engines of economic growth promoting equitable development for all. The role of MSME in Indian economy is important, as the MSMEs are key contributors to the socio-economic development of the country. The initiative of MSME started functioning in 2006 to create a competitive environment and encourage small businesses to ensure speedy development and boost the economy.

The Micro Small and Medium Enterprises (MSMEs) were classified as per the MSME Act-2006 solely based on their investment. However, this definition was broadened by the Finance Minister Nirmala Sitharaman in 2020 and a composite criterion was introduced. Turnover was also added to the definition. The updated classification of MSMEs is given below.

The MSMEs are categorized into manufacturing sectors and service sectors. The sectors are classified as per the investment, annual turnover and investment. Below is the classification of the micro, small and medium enterprises.

Criteria Micro Enterprises Small Enterprises Medium Enterprises
Investment Less than ₹ 1 Cr Less than ₹ 10 Cr Less than ₹ 50 Cr
Annual turnover Less than ₹ 5 Cr Less than ₹ 50 Cr Less than ₹ 250 Cr

Therefore, to support and promote MSMEs, the Indian government offers various subsidies, schemes and incentives through the MSMED Act. A registration under the MSMED Act is required to avail the benefits of the same from the central or state government and the banking sector. This registration is known as the MSME registration.

Micro, small and medium sized enterprises in both the manufacturing and service sector can obtain MSME Registration under the MSMED Act. Though the MSME registration is not statutory, it is beneficial for business at it provides a range of benefits such as eligibility for lower rates of interest, excise exemption schemes, tax subsidies, power tariff subsidies, capital investment subsidies and other support.

MSME registration is not a statutory requirement. However, the MSME registration process in India has been conceptualized to provide maximum benefits to all types of enterprises. After registration, any enterprise becomes qualified to reap the benefits offered under the MSMED Act. Some of the benefits from Central Government include easy sanction of bank loans (priority sector lending), lower rates of interest, excise exemption scheme, exemption under certain tax laws and statutory support.

The state government and union territories also have complied with their own package of facilities and incentives for MSMEs. Some of the benefits provided by the state government for MSMEs include the development of specialized industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies and other support.