Here we have explained about the New Classification of MSME – Micro Small Medium Enterprise. Read further to know more.
The branch of the Government of India includes the Ministry of micro, small and medium enterprises. The MSME is the top executive body for the administration and formation of rules, regulations, and various laws which are related to micro, small and medium enterprises in India. The MSME Act was initially different for manufacturing and services units. It was also very low in terms of monetary limits.
Any company which has an investment up to Rs 1 crore and turnover below 5 crores will be classified as micro. A firm which has an investment up to Rs 10 crore and turnover up to Rs 50 crore will be classified as small and a firm with an investment up to Rs 20 crore and turnover under Rs 100 crore will be classified as medium.
Definition of MSME valid upto 30th June 2020.
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.
Erstwhile MSME Classification
Criteria: Investment in Plant and Machinery/Equipment
| Classification | Micro | Small | Medium |
| Manufacturing Enterprises | Investment not more than INR 25 lakhs | Investment not more than INR 5 crores | Investment not more than INR 10 crores |
| Enterprises rendering Services | Investment not more than INR 10 lakhs | Investment not more than INR 2 crores | Investment not more than INR 5 crores |
As per revised definition of MSME, An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria, namely:–
Revised MSME Classification (w.e.f. July 1, 2020)
Composite Criteria: Investment in Plant and Machinery/Equipment and Annual Turnover
| Classification | Micro | Small | Medium |
| Manufacturing Enterprises and Enterprises rendering Services | Investment in P&M/Equipment not more than INR 1 crore and Annual Turnover not more than INR 5 crores | Investment in P&M/Equipment not more than INR 10 crores and Annual Turnover not more than INR 50 crores | Investment in P&M/Equipment not more than INR 50 crores & Annual Turnover not more than INR 250 crores |
Clarification on MSME Registration & Classification completed between 01.04.2022 and 07.06.2022-reg.
The Udyam Registration site obtains information from the Income Tax portals.
1. The Tax Department and GSTN classify registered MSMEs based on frozen investment and turnover data. For example, the data utilised for Fiscal Year 2021-22 is from 2019-20.
2. According to CBDT, the Income Tax Department’s site was being updated from 01-04-2022 to 07-06-2022. Due to the lack of data for fiscal year 2020-21 within the specified time, the categorization of registered MSMEs on the Udyam Portal was done using data from fiscal year 2019-20.
3. If MSMEs who registered between 01-04-2022 and 07-06-2022 received any advantages based on the categorization done during that time period, the benefits received shall be preserved.
4. MSMEs who registered between 01-04-2022 and 07-06-2022 are recommended to get their revised certificates categorised for the period 2022-23 based on F.Y. 2020-21 data from the Udyam Registration Portal link:
There are various services provided by MSMEs which includes facilities for testing, toolmenting, and training for entrepreneurship development. The MSMEs also provides for the preparation of project and product profiles, assistance for exports, technical and managerial consultancy as well as pollution and energy audits.
The MSME provides information services and also advises the Government in the formulation of policy for its promotion and development. The field offices act as effective links between the Central and State Governments.
Now, the government has passed a new bill, which classifies the MSMEs supported on its annual turnover rather than investment. The revised basis for classification of MSMEs established on turnover has made it easier for both the government and therefore the industries to acknowledge a business as an MSME.
MSMEs are a crucial sector for the Indian economy and have contributed extremely to the country’s socio-economic development. It generates employment opportunities as well as works hand-in-hand towards the development of the nation’s rural and backward areas.
The Government of India can search within the GST database online to match the actual turnover cited by an enterprise or organization and accordingly classify it into the MSME category. 29 percent of India’s gross domestic product is contributed by MSMEs and they also comprise almost half of its exports. These units employ over 11 crore workers.
The Micro, Small and Medium Enterprises Development Act, 2005 (MSME Act) is enacted by the Government of India under which classification of micro, small and medium enterprises (MSME) was dependent on two factors particularly the investment in plant and machinery and turnover of the enterprise. It is also important to see that different threshold that were prescribed for being classified as an MSME which are based on the aforesaid factors, for companies involved in the manufacturing and services sector.
Recently, under Aatmanirbhar Bharat Abhiyan (ABA), the Ministry of Micro, Small and Medium Enterprises, under the Aatmanirbhar Bharat Abhiyan (ABA), has revised the MSME classification by inserting a composite criterion for the investment in plant and machinery and the yearly turnover of companies. Also, now there is no distinction between the manufacturing and the services sectors under the erstwhile MSME definition. This removal will create parity between the sectors.
From July this year, the new MSME classification will be effective. This new classification which has been introduced by the Government is to boost businesses and put to rest the growing fear among MSMEs of losing benefits granted under the MSME Act on account of outgrowing the previous thresholds of classification. This is actually a welcome initiative by the Government, but various questions remain unanswered, such as what constitutes “plant and machinery”, will the previous guidelines on towards plant and machinery on the calculation of investment still be applicable.
Further, it is appropriate to note that the Finance Minister has clarified that start-ups are eligible to avail relief measures announced for MSME under the ABA. Start-ups are not generally covered under the definition of MSMEs, start-ups operating and engaged in the manufacturing and services sector may consider registering themselves as an MSME on the Udyog Aadhar Portal (according to the revised classification of MSMEs). Start-ups after registering as MSMEs can avail of the various other benefits offered to MSMEs under the ABA.
From July this year, more than six crore micro, small and medium enterprises are going to be classified on the idea of the new criteria approved by the government across the country. According to the new revised criteria, a company which has an investment of Rs 50 crore and a turnover of Rs 250 crore will fall under the ‘medium’ enterprise category.
Whereas, a manufacturing and services unit which has Rs 1 crore of investment and Rs 5 crore of turnover are going to be classified as ‘micro’ and a firm involving Rs 10 crore of investment and Rs 50 crore of turnover are going to be categorized as a ‘small’ enterprise.
Also, a new composite formula of classification for manufacturing and services units has been notified. No difference will be there between the manufacturing and service sectors.
Hope now you might understood New Classification of MSME and its New criteria for classification of Micro, Small and Medium Enterprise.
If you are looking for MSME registration for your business, then click this link to proceed further.
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