Government of India issued a comprehensive notification defining, classifying and registering, Micro, small and medium enterprises superseding four previous notifications including that of 1st June 2020. In this post, we will discuss the notification.

The notification is applicable with effect from 1st July 2020.

Classification of enterprises

There is no change in criteria since the last notification.  We have already discussed here the way to amend criteria for classification and related aspect in relation to the previous notification dated 1st June 2020. That analysis is still valid for this notification also. As we discussed the earlier post, the actual definition of MSME is not in the notification but criteria. For brevity, we are not reproducing amended effective definition mentioned here. [Clause 2]

Composite criteria

All units under using the same PAN shall be treated as one enterprise. It is not possible to have more than one MSME under one company or firm. Clause 3(3) clarifies, “all units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise”. [Clause 3(3)]

Movement across categories

An enterprise shall move to a higher category if is crosses ceiling limits specified for its present category in either of the two criteria of investment or turnover.

No enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover. [Clause 3(2)]

Registration of Micro, Small and Medium enterprises

According to clause 2(1), any person who intends to establish* a micro, small or medium enterprise may file Udyam Registration online in the Udyam Registration portal, based on self-declaration with no requirement to upload documents, papers, certificates or proof. Please read term establish* as register because enterprise must have been in existence for the purpose of this MSMED Act, 2006. As on the date of writing, neither Udyam Registration Portal nor earlier Udyog Aadhar Portal is working.

On registration, an enterprise will be assigned a permanent identification number to be known as ―Udyam Registration Number. An e-certificate, namely, ―Udyam Registration Certificate‖ shall be issued on completion of the registration process. This may be a downloaded as we do in case of present UAN certificate.

Calculation of Investment

The expression ―plant and machinery or equipment‖ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings). [Clause 4(3)] The cost of certain items specified in the Explanation I to sub-section (1) of section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery. [Clause 4(5)]

In the case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise. [Clause 4(2)] The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR. [Claude 4(4)]

Calculation of turnover

Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN. Exports of goods or services or both shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification. [Clause 5]

Registration process

  • No Fee;
  • PAN and GSTN of the firm with Aadhar number of
    • Proprietor,
    • Managing Partner; and
    • Karta;
    • authorized signatory in case of :
      • Company;
      • LLP;
      • Cooperative Society
      • Society, or
      • Trust
    • any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration

Registration of existing enterprises

The existing enterprises registered under EM–Part-II or UAM or otherwise prior to 30th June 2020, shall continue to be valid only for a period up to the 31st day of March 2021 and shall register again after 1st July 2020.

Updation of information

An enterprise having Udyam Registration Number shall update its information online in the Udyam Registration portal, including the details of the ITR and the GST Return for the previous financial year and such other additional information as may be required, on self-declaration basis.

This seems an annual exercise. Failure will result in suspension of the number. Based on the information furnished or gathered from Government’s sources including ITR or GST return, the classification of the enterprise will be updated. It seems automatic process. In case of graduation (from a lower to a higher category) or reverse-graduation (sliding down to lower category) of an enterprise, a communication will be sent to the enterprise about the change in the status.

Aishwarya Mohan Gahrana

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