All you need to know about Micro, Small and Medium Enterprises (MSMEs)

All you need to know about Micro Small and Medium Enterprises MSMEs

What’s MSME?
MSME stands for Micro, Small and Medium Enterprises. MSME represents a collection of all small to medium sized enterprises in an economy. In a developing economies like India, MSME play a vital role in growth of the economy.
In this article, we shall discuss and understand following points in relation to MSME industries from Indian perspective.

MSME Sector in India: An Overview
As per data provided by, the MSME sector contributes to 45% of India’s Total Industrial Employment, 50% of India’s Total Exports and 95% of all industrial units of the country and more than 6000 types of products are manufactured in these industries. These industries are also known as small-scale industries or SSI’s.
The act governing MSME sector is MSME Act 2006. Even if the Company is in the manufacturing line or the service line, registrations for both these areas can be obtained through the MSME act. This registration is not yet made mandatory by the Government but it is beneficial to get one’s business registered under this because it provides a lot of benefits in terms of taxation, setting up the business, credit facilities, loans etc.
The MSME act came in force in the year 2006 to promote, facilitate and develop the competitiveness of the micro, small and medium enterprises.
Recently, the Union Cabinet changed classification norms for MSMEs from investment in plant and machinery/equipment’ to ‘annual turnover’. It is considered as a big relief for MSME sector units.

Categories of MSME:
MSMEs are categories in two broad classifications namely, Manufacturing Enterprise and Service Enterprise. Manufacturing enterprises are engaged in manufacturing of goods while service enterprises are engaged in provision of Services.
Manufacturing Enterprises:
Any enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and Regulation) Act, 1951 or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use.

Service Enterprises:
The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.
Classification of Micro, Small and Medium Enterprises:
MSME are classified into Micro, Small and Medium Enterprise based on amount of investment in Plant and Machinery and / or equipments.

The limit for investment in plant and machinery/equipment for manufacturing/service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under:

Type Of enterprise Manufacturing Sector Service Sector
Investment in Plant & Machinery Investment in Equipments
Micro Up to Rupees 25,00,000 Up to Rs. 10,00,000
Small Exceeding Rs. 25,00,000 but up to Rs. 5 Crore. Exceeding Rs. 10 Lakh but up to Rs. 2 Crore.
Medium Exceeding Rs. 5 Crore rupees but does not exceed ten crore rupees Exceeding 2 crore rupees but up to 5 crore Rupees.

Registration under MSME:
There are basically two types of registrations:

1. Provisional Registration:
Provisional registration is granted to the unit during its pre-investment period to enable it to take necessary steps to apply for financial credit, land or an industrial set, water, power or telephone connections, etc
2. Permanent / Final Registration:
A provisionally registered Industrial unit when is about to in production can apply for permanent registration. Apart from this, an existing industrial unit is also eligible to apply for permanent registration without opting for the provisional one.

Registration Process of an MSME Unit:

  • Application for Registration in MSME can be made online or offline using a single page registration form.
  • A person needs to apply for registration for each different industry.

Documents required for SMSE registration:
Following documents are required for the registration:

A. General Details:

  1. Personal Aadhar Number
  2. Industry name
  3. Address Proof
  4. Bank account details

B. Business Address Proof:

  1. For self-owned premises:

  • Allotment letter
  • Possession letter
  • Lease deed or property tax receipt
  • Municipal license in the business name or in the name of the proprietor, partner or director of the business,

II. For Rented Premise: 

    • Rent receipt
    • no objection certificate from the landlord
    • Utility bill or document evidencing the landlord’s ownership

C. Partnership Deed / MoA and AoA:

  1. In case of partnership firm: partnership deed
  2. In case of Registered partnership firm partnership deed and registration certificate
  3. In case of a company: Memorandum of Association, Articles of Association, certificate of incorporation, a copy of the resolution passed in general meeting, and the copy of board resolution authorizing a director to sign the MSME application is also to be submitted.

D. Copy of Licenses and Bills of Machinery Purchased:
In few cases, the applicant has to submit a copy of industrial license which is to be obtained by giving an application to Govt. of India. Further, all bills and receipts related to purchase and installation of plant and machinery have to be kept safe and required to be submitted on demand.

E. Copies of Sale Bill and Purchase Bill:
Business is required to submit a copy of sale bill related to each end product that it will supply. Also, for each raw material that it will purchase, a purchase bill has to be submitted.

Registration Fees:

Registration under MSME is completely free of cost. No registration fees are required to be paid.

Advantages of MSME Registration:

  • Cheaper Bank Loans: The bank loans become cheaper as the interest rate is very low around 1 to 1.5%. Much lower than interest on regular loans.
  • Statutory support: condition and the Interest on Delayed Payments Act.
  • Tax Rebates: There are various tax rebates offered to MSME to by Government to promote this sector
  • Minimum Alternate Tax (MAT) Benefits: An MSME is allowed to carry forward credit for minimum alternate tax (MAT) for up to 15 years instead of 10 years.
  • Government Tenders: There are many government tenders which are only open to the MSME Industries.
  • Easy availability of Credit: Several credits are available to MSME sector units.
  • Businesses registered under MSME are given higher preference for government license and certification.
  • There is a One Time Settlement Fee for non-paid amounts of MSME.

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