Basis of classifying Micro, Small and Medium enterprises has been changed

The Union Cabinet on 7 February 2018 approved change in the basis of classifying Micro, Small and Medium enterprises from ‘investment in plant & machinery/equipment’ to ‘annual turnover’. Section 7 of the Micro, Small and Medium Enterprises Development (MSMED)  Act, 2006 will accordingly be amended to define units producing goods and rendering services in terms of annual turnover as follows:

  • A micro enterprise will be defined as a unit where the annual turnover does not exceed five crore rupees;
  • A small enterprise will be defined as a unit where the annual turnover is more than five crore rupees but does not exceed Rs 75 crore;
  • A medium enterprise will be defined as a unit where the annual turnover is more than seventy five crore rupees but does not exceed Rs 250 crore.
  • Additionally, the Central Government may, by notification, vary turnover limits, which shall not exceed thrice the limits specified in Section 7 of the MSMED Act.

 Causes of change:  At present the MSMED Act (Section 7) classifies the Micro, Small and Medium Enterprises (MSMEs) on the basis of investment in plant and machinery for manufacturing units, and investment in equipment for service enterprises. The criterion of investment in plant and machinery stipulates self declaration which in turn entails verification if deemed necessary and leads to transaction costs.

Impact: This will encourage ease of doing business, make the norms of classification growth oriented and align them to the new tax regime revolving around GST (Goods & Services Tax). r of the country.


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