How The New Definition of MSME Sector Benefits Your Business

How The New Definition of MSME Sector Benefits Your Business
(Last Updated On: June 1, 2020)

It’s been a long time coming: but the Indian Government is finalising a new definition of MSME sector that will benefit small businesses.

From now, MSME classification will be based on turnover as well as investment.

Why does the Government want to change the definition of MSMEs?

This is not the first time the government has proposed a new definition of MSME sector. A year ago, the proposal to change MSME classification based on turnover led to opposition from several political parties.

However, the Government has decided to move along with the decision to change MSME definition to a more modern one – one that will help small businesses too.

Union Minister Nitin Gadkari stated that a new classification could help generate five crore jobs in the MSME sector in five years.

Also, the main motive behind the MSME proposal is to end the difference between manufacturing and service industries – which the current investment based structure does.

What is the new MSME Classification?

How can the Government decide whether your business is a micro, small or medium enterprise? The last definition of MSME sector was made 13 years ago. The Government pushed for a new classification system after the introduction of GST and demonetization.

According to the new proposal, the MSME sector will now be classified on their annual turnover. The division is as follows:

The Government has approved the revised definition of MSMEs in the country. The MSME sector will now be classified based on turnover as well as plant and machinery.*

Micro units – Investments up to Rs. 1 crore and turnover of fewer than 5 crores.

Small unit – Investment up to Rs. 10 crores, turnover of less than Rs. 50 crore.

Medium unit – Investments up to Rs. 50 crore,  turnover of less than Rs. 250 crores.

How will a new definition of MSMEs benefit Small Business?

If your business falls under the MSME sector, the Government grants you several benefits to help ease business operations.

GST exemption: If you are a small business with an annual turnover under INR 40 Lakhs, you need not be registered under GST. At the beginning of the year, the GST council made a decision in their most recent meeting to double the current GST limit for MSMEs to ₹ 40 lakhs from the previous ₹20 lakhs. GST makes it easier to monitor turnover and classify businesses.

ISO Reimbursement: In a move to strengthen the MSME sector and provide better financial aid, the ISO MSME reimbursement scheme is expanded by the Government. The new reimbursement scheme for small businesses that have acquired the ISO 9000/ISO 14001/HACCP certification.

As a registered MSME, you can enjoy several benefits. With Instamojo, you can collect payments by setting up your account for free with zero maintenance costs. Over the past few years, we have helped facilitate over 1 million MSMEs on our platform.

*This post was updated last on June 1st, 2020 after the Government approved the new definition of MSMEs as proposed by Minister Nitin Gadkari




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