Are you a small business? How can the government tell if you are a Micro, Small, and Medium Enterprise? Earlier MSME classification was done on the basis of how much money you’ve put in your business. But, not anymore. Now, the classification will be based on your annual turnover.
The Union cabinet approved a bill to change the way MSMEs are classified recently. It was first introduced by Giriraj Singh, Minister of State for MSMEs, but was withdrawn in 2015. The change marks a new definition for all MSMEs in the country.
Current MSME classification: (Based on investment)
The current classification involves the amount of investment made by the enterprise on plant and machinery or equipment.
- Micro Enterprise: Up to Rs. 25 L
- Small Enterprise: Between Rs. 25 L – 5 Cr
- Medium Enterprise: Between Rs. 5 Cr – 10 Cr
- Micro Enterprise: Up to Rs. 10L
- Small Enterprise: Between Rs. 10 L – 2 Cr
- Medium Enterprise: Between Rs. 2 Cr – 5 Cr
New MSME classification: (Based on annual turnover)
Goods & Services category:
- Micro Enterprise: Up to Rs. 5 Cr
- Small Enterprise: Between Rs. 5 Cr – 75 Cr
- Medium Enterprise: Between Rs. 75 Cr – 250 Cr
Why change the MSME classification?
- Currently, classifying an MSME involves physical verification that costs the government time, money and manpower.
- Businesses try to limit their investments and retain their MSME tag to avail various benefits under the MSME category.
- The government can now just look up business details on the Goods and Services Network (GSTN) database to validate the category it falls under and it’s financial data to determine the size of the business.
- Changing the way MSMEs are classified will also encourage transparency and an objective way of looking at business metrics.
The bill is a welcome change to curb misrepresentation of investments to avail benefits. The change is a necessity to align with the current trends and an evolving ecosystem.
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