Here let us understand a few of the common queries on What criteria are used by the MSME Act to classify Micro, Small, or Medium-Sized Enterprises? How does the Ministry make sure businesses are reporting accurate information?
With the MSME Act, the Ministry of MSME is dedicated to advancing the MSME sector in India. This act outlines a number of rules for the Ministry to follow while working with Indian MSMEs to boost the country’s economy. According to the Ministry, improving the MSME sector will boost both employment prospects and the country’s overall economic growth.
For the Act to live up to its promises, the company must be divided into Micro, Small, and Medium Companies. The Ministry of MSME specifically established its guiding ideals in the MSME Act of 2006 legislation. All policies aimed at assisting or benefiting businesses in India must be built on these fundamentals. After all, it will be challenging to decide which kind of support or help a firm needs without understanding its size and ability to absorb the benefits.
Given the limited economic resources the government has available, this may serve as the foundation for reducing resource spillage that could result from providing firms with more assistance or advantages than they can reasonably use. Additionally, it makes sure that no support is provided insufficiently and that fair practises are followed when aiding so many Indian firms.
Although the Ministry of MSME established the criteria for classification of Micro, Small, or Medium Businesses in 2006, the criteria have recently needed to be updated due to the nation’s rapidly shifting market and economic conditions. Given this requirement, the Ministry of MSME has begun implementing necessary Act amendments via notifications published between November 2013 and June 2017. The government recently issued a notification with the number S.O.1702 (E) on June 1, 2020, and the same has been published in the Gazette of India as part of a redesign to satisfy the new age needs of facilitating the Act.
Let’s talk about the Ministry of MSME’s most recent announcement about the classification of businesses as Micro, Small, or Medium Businesses.
Based on the following factors, any business will primarily be classed as a Micro, Small, or Medium Enterprise:
If a company invests less than Rs. 1 crore in plant, machinery, or equipment, and if its annual revenue is less than Rs. 5 crore, it will be categorised as a microbusiness.
A company would be labelled as small if its investment in plant, machinery, or equipment is less than Rs. 10 crore and its annual revenue is less than Rs. 50 crore.
If a company invests less than Rs. 50 crore in plant, machinery, or equipment, and if its annual revenue is less than Rs. 250 crore, it will be categorised as a medium-sized company. Any businesses that exceed the aforementioned restrictions will not be permitted to register under the MSME Act and will not be eligible for the benefits and assistance provided by the Act.
If an enterprise’s sales or investment fluctuates year over year and exceeds the maximum allowed for the classification in which they are currently placed, you must be asking how they can move between the Micro, Small, and Medium categories.
The solution is straightforward: if any firm surpasses the threshold for investment or turnover set forth in their current classification, they will automatically qualify for the following classification. This isn’t the same when the amount actually falls below the designated limit.
In that instance, the firm must meet both the investment and turnover requirements in order to qualify for the lower tier and be moved into the lower criterion of classification.
Even if many businesses have many entities registered under them, one thing that businesses need to keep in mind is that the MSME Act only counts as one entity any business that has multiple GST registered under the same PAN. This has been done to prevent corporations from dividing into different entities only for the purpose of misrepresenting data by underreporting actual amounts.
You might wonder how the Ministry makes sure businesses submit accurate information when they apply for registrations under these different categories. Well, even for that, the Government has a solution.
It will retrieve information from the Income Tax Returns of the prior years submitted under the Income Tax Act, 1961 for computing the investment in plant, machinery, or equipment. The promoter will only gather the enterprise’s information if it is a new one and has never filed an ITR before. This information will then be validated when the enterprise files its ITR after the fiscal year ends in March of that year.
The same can be questioned with the reporting of enterprise turnover. How will the Ministry ensure that the data is accurate?
PAN is a requirement for every registration, thus the ministry will retrieve information from the businesses’ income tax returns and GST returns to confirm that the data supplied is accurate. In the case of new businesses, a grace period up to March 31 of the current fiscal year will be provided before the businesses are required to file their ITR and GST Returns, which can be used to verify information.
The Ministry of MSME has recently put in place the Udyam Registration process in order to categorise businesses as Micro, Small, or Medium Businesses and offer them the appropriate incentives. Newly registered businesses have the option of self-declaring their information or having the system pull it from their previously submitted ITRs and GST Returns. With the primary goal of electronically expediting data reporting and making it simpler for the Ministry to check data supplied by the applicants, this new and advanced Udyam Registration system has been created.
Any business that knowingly gives false information or makes an effort to conceal any self-reported facts and figures when applying for Udyam Registration or changing an existing registration would be subject to the penalties outlined in Section 27 of the MSME Act.
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