Revised Guidelines on Classifications of MSME's and Registration under Udyam

The Central Govt. has notified revised method of classification of micro, small and medium enterprises w.e.f. 1st July 2020.

To make easy and convenient to understand the notification we are providing few examples to elaborate and make it understandable.

Examples:-

1. The grouping of bodies based on investment in plant & machinery or equipment and/or collective turnover is proposed as follows:
• Micro units- investment in plant & machinery or equipment (P&M or E) up to Rs. 1 Cr. and turnover up to Rs. 5 Cr.
• Small units- investment in P&M or E up to Rs. 10 Cr. and turnover up to Rs. 50 Cr.
• Medium units- investment in P&M or E up to Rs. 50 Cr. and turnover up to Rs. 250 Cr.
• All those units not covered under any of above three groups shall be called large enterprises.
2. To be grouped under a specific category, the unit should fulfill both the criteria (investment in P&M or E and aggregate turnover) of that category. If it surpasses the limit under any of the two criteria, it will lose its category and will be grouped under next higher category.
• P&M or E is Rs. 60 lakh but turnover is Rs. 6 Cr.- small enterprise
• P&M or E is Rs. 8 Cr. but turnover is Rs. 4 Cr.- small enterprise
• P&M or E is Rs. 90 lakh but turnover is Rs. 55 Cr.- medium enterprise
• P&M or E is Rs. 9 Cr. but turnover is Rs. 200 Cr.- medium enterprise
• P&M or E is Rs. 75 lakh but turnover is Rs. 260 Cr.- large enterprise It means category of a unit will be higher of the two determined under the two criteria (investment in P&M or E and turnover).
3. All units under same PAN will be counted as one and their investment in P&M or E as well as turnover will be combined for classification purposes.

For example- if an individual has 3 different businesses under 3 different proprietorship firms, they will be treated as one for this purpose because their PAN will be same. Though, if one individual has 2 proprietorships and is a partner in one partnership firm, the turnover/P&M or E of the partnership shall not be clubbed with those of the 2 proprietorship firms since PAN of the partnership shall be different.

4. Calculation of investment in P&M or E shall be linked to your ITRs filed for previous years. If it is a new entity and no previous ITR exists, the first time value of investment in P&M or E shall be on self-declaration basis but this relaxation shall cease to exist on 31st March of the year in which you file your first ITR.

For example- if you start a new unit today i.e. on 27.06.2020, you shall have to self-declare value of investment in P&M or E and it will be accepted. But since you will file your first ITR in next financial year i.e. FY 2021-22, the self-declaration will have no effect after 31.03.2022 and the system will pick the value of P&M or E declared in your ITR.

5. The term P&M or E shall comprise all tangible assets except land & building and furniture & fittings. Meaning thereby, intangible assets such as goodwill, patent, trademarks, copyrights etc. will not be included in value of P&M or E.
6. The original purchase value (and not the WDV) of P&M or E, whether bought new or second hand, but excluding amount of GST, shall be considered forever for the purpose of computation of investment in P&M or E.
7. While computing turnover, value of exports of both goods and services shall be excluded. Information concerning turnover and exports turnover shall be imported from your GST profile. Though, in case of a new body which does not have PAN, the turnover shall be accepted on declaration basis maximum up to 31st March 2021 after which both PAN and GSTIN shall be mandatory.
8. The registration window named as 'Udyam' shall open from 1st July 2020. The procedure of registration shall be almost similar to that under Udyog Aadhaar. Aadhaar number shall be mandatory here also.
9. All prevailing entities already registered under Udyog Aadhar need to register again under Udyam on or after 1st July 2020 but before 31st March 2021. After 31.03.2021, prevailing units registered under Udyog Aadhaar shall lose their benefits if not registered under Udyam. All existing entities registered under Udyog Aadhaar shall be re-classified in line with these guidelines.
10. After first time registration, all registered entities shall have to update their details every year within a specified period else their status may be suspended.
11. Based on information filed by you and assembled from Income Tax portal and GST portal, your classification may change from time to time.
12. Although, if your sorting gets revised upwards (e.g. from small to medium or micro to small), it will take effect after one year from the end of the financial year in which such change occurs. For example- if you update your details on 01.07.2020 and your status revises upwards from micro to small, you will still remain a micro unit till 31.03.2022 for all purposes and continue to take all benefits available to micro units.
13. But if the arrangement revises downwards, it will take effect from 1st April of the next financial year. For example- if you update details on 15.07.2020 and your status changes downwards from small to micro, it will take effect from 01.04.2021.
14. Only manufacturing and service providing entities are to be covered under MSMEs as usual. Trading entities are not to be covered under this classification.
15. Finally, registering under Udyam, like Udyog Aadhaar, is voluntary and not mandatory. But, to avail firm benefits (including concession on interest rates on bank loans), you must be registered thereunder.