Annual Turnover Change in Classification Norms for MSMEs by Union Cabinet

Feb 08, 2018 | by Avantis RegTech Legal Research Team

The Union Cabinet has approved the change in the basis of classifying Micro, Small and Medium enterprises from investment in plant & machinery/equipment to annual turnover criteria. This step is taken to encourage the ease of doing business (EoDB), make the norms of classification growth oriented and align them to the new tax regime revolving around GST i.e. Goods & Services Tax. 

To give effect to this decision of change in classifying the criteria, Section 7 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 will be amended accordingly.

The approved criterion of annual turnover is as under:

·     A micro enterprise will be defined as a unit where the annual turnover does not exceed Rs. 5 Crore;

·     A small enterprise will be defined as a unit where the annual turnover is more than Rs. 5 Crore but does not exceed Rs. 75 Crore;

·     A medium enterprise will be defined as a unit where the annual turnover is more than Rs. 75 Crore but does not exceed Rs 250 Crore.

In addition to this, the Central Government may, by notification, vary turnover limits, which shall not exceed thrice the limits specified in Section 7 of the MSMED Act.

Currently, as per the MSMED Act (Section 7) which 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.

 However, the new criteria of annual turnover will be a reliable source as it will show reliable figures available. For e.g. in GST Network and other methods of ascertaining which will help in having a non-discretionary, transparent and objective criteria and will eliminate the need for inspections, making the classification system progressive and evolutionary, helping in overcoming the uncertainties associated with the classification based on investment in plant & machinery/equipment and employment and it will improve the ease of doing business.

In addition, the amendment will provide flexibility to the Government to fine-tune the classification of MSMEs in response to changing economic scenario without resorting to the amendment of MSMED (Micro, Small & Medium Enterprises Development) Act.

The change in the norms of classification will enhance the ease of doing business. The consequent growth and will pave the way for increased direct and indirect employment in the MSME sector of the country.

[AKT/VBA/SH]

 

URL: http://pib.nic.in/newsite/PrintRelease.aspx?relid=176353


Related Updates



Alternate Text

Get updates on the go on RuleZbook Mobile App.