MSME Sector In India

MSME stands for Micro, Small and Medium Enterprises. The Micro, Small and Medium Enterprises Development Act was notified in the year 2006 to address policy issues, investment and fund issues affecting the MSME sector. It was established to promote, facilitate and develop the micro, small and medium enterprises in the country. 

 The MSME sector is the backbone of the Indian economy. As per the Ministry of Micro, Small and Medium Enterprises, 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. More than 6000 types of products are manufactured in the MSME sector and contribute to the growing economy. India owes a huge part of its growth to the MSME sector. It remains a critical source of employment. These enterprises contribute significantly to the growth of the nation via employment and innovation.

MSME is classified into two categories—Manufacturing enterprise and Service enterprise. They are defined in terms of investment in plant and machinery and should meet the investment criteria below: 

  Micro enterprise Small enterprise Medium enterprise
Manufacturing Enterprises Less than Rs. 25 lakhs Rs. 25 lakhs to Rs. 5 crores Rs. 5 crores to Rs. 10 crores
Service Enterprises Less than Rs. 10 lakhs Rs. 10 lakhs to Rs. 2 crores Rs. 2 crores Rs. 5 crores

Registration Process

If your MSME enterprise has an MSME registration, there are numerous benefits you stand to reap. This includes an easy sanction of bank loans, lower rates of interest, excise exemption scheme, an exemption under direct tax laws and legal support such as reservation and the interest on delayed payments. Other benefits include tax subsidies, power tariff subsidies, and capital investment subsidies. 

The registration process is fairly straightforward. To register, one needs to fill a simple form which can be done online as well as offline. Registration is completely free of cost. The registration form is available at the Udyog Aadhaar website, which is the official website for MSME registration. Below are the steps to register online:

  • Log in with your Aadhaar details. Make sure to fill your name as mentioned on the Aadhaar card.  The 12-digit Aadhaar number issued to you must be filled in the appropriate field. Validate your Aadhaar details, post which you should be able to fill the form. 

  • Choose your Social Category, i.e., whether general, scheduled caste, scheduled tribe or other backward castes (OBC). Other details to be included are your gender and disability status. 

  • Enter the name of your Enterprise as known to the public and is legally authorized to conduct business. You can have more than one business and each one can be registered for a separate Udyog Aadhaar and with the same Aadhaar Number.

  • Select the type of organization from the given list. Include other details such as the location of the plant, office address, date of commencement, previous registration details (if any) and bank details. Include information on the number of employees you have, as well as the investment amount in plant & machinery or equipment. 

  • You must choose between the two types of MSMEs i.e. either "Manufacturing" or "Service”. 

  • Once you fill in all the required details, you will be issued a registration number.

Additional Reading: What Are The Benefits Of MSME Loan?

Documents Required for MSME Registration

The MSME entity must submit documents like business address proof, copies of purchase and sale bill, and licenses from regulatory bodies. Following is the list of documents required: 

  • KYC documents 

  • Business address proof

  • Copies of sale bill and purchase bill

  • Partnership deed

  • MoA and AoA

  • Copy of licenses 

  • Bills of machinery purchased

Benefits Of Getting Your Business An MSME Registration

Avail collateral-free loans from banks: The Credit Guarantee Fund Scheme (CGS) for MSMEs was launched by the Government of India which makes it possible for MSMEs to avail collateral-free loans. Enterprises that have MSME Registration are eligible for such collateral-free loans from banks. 

Reduced interest rates and access to greater credit: Many business owners may find it extremely hard to secure a loan for starting their business. However, with an MSME Registration, all banks are required to offer loans at reduced interest rates. Also, you may find it easier to access credit, given the priority lending to MSME entities. 

Income Tax exemption: Avail income tax benefits with an MSME registration, which otherwise translate into lakhs of rupees if you are not registered. Having an MSME registration certificate also relieves you from undergoing audit procedures.

Industrial promotion subsidy: Enterprises that have MSME Registration are eligible for Industrial Promotion Subsidy as may be prescribed by the government from time to time.

Avail 50% subsidy on patent registration: Enterprises having MSME Registration can avail 50% subsidy for patent registration.

1% exemption on the interest rate on overdraft: Enterprises having MSME Registration can avail the benefit of 1% exemption on the interest rate on overdraft. However, this is dependent on the bank.  

Protection against delayed payments: Needless to say, this is an important factor for all business owners. The Ministry of MSME gives protection to MSME-Registered Business against delay in payments from buyers and the right of interest on delayed payment. If your enterprise has an MSME registration, you are automatically protected against delayed payments. If the client doesn’t pay within 45 days, the payment, along with the interest should be paid by the buyer to the MSME. The penal interest chargeable for delayed payment to an MSME entity is three times of the bank rate. 

Reimbursement of ISO certification charges: Enterprises having MSME Registration can claim reimbursement of ISO Certification expenses

Concession in electricity bills: Enterprises having MSME Registration Certificate can avail concession on electricity bills by filling the appropriate form. 

Export promotion and support: The government incentivizes the export of goods and services offered by MSMEs by way of subsidies, tax exemption, and technical support.

Technology support: The Ministry supports technology upgradation in order to enhance the cost-effectiveness and promote clean energy use. The government reimburses project costs towards these goals for MSME sector units. You can also get the expenditure incurred for the implementation of clean technology reimbursed. 

If your MSME enterprise has an MSME registration certificate, there are numerous benefits you stand to reap.