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Who Can Apply for MSME Registration? – Eligibility Criteria

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What is MSME?

Micro, Small, and Medium Enterprises (MSMEs) are business entities categorized based on size and investment. As per the MSME Development Act, the definition of MSMEs considers various factors, including investment in plant and machinery or equipment, turnover, and employment. Here is a breakdown of the MSME classification:

  1. Micro Enterprises:
    • Manufacturing Sector: Businesses with an investment of up to INR 1 crore and turnover of up to INR 5 crores.
    • Service Sector: Businesses with an investment of up to INR 1 crore and turnover of up to INR 5 crores.
  2. Small Enterprises:
    • Manufacturing Sector: Businesses with an investment of up to INR 10 crores and turnover of up to INR 50 crores.
    • Service Sector: Businesses with an investment of up to INR 10 crores and turnover of up to INR 50 crores.
  3. Medium Enterprises:
    • Manufacturing Sector: Businesses with an investment of up to INR 50 crores and turnover of up to INR 250 crores.
    • Service Sector: Businesses with an investment of up to INR 50 crores and turnover of up to INR 250 crores.

Who Can Apply for MSME Registration?

MSME registration is open to all Micro, Small, and Medium Enterprises (MSME) entities. Individuals are not eligible to apply for MSME registration. MSME registration is available to any proprietorship, partnership business, corporation, trust, or society with an investment of less than Rs.50 crore and annual revenue of less than Rs.250 crore.

In a developing country such as India, MSME industries are the backbone of the economy. When the MSME industries grow, our country’s economy also grows as a whole and flourishes. The other name for MSME industries is small-scale industries or SSIs. The MSME became operational on October 02, 2006.

Key Takeaways

  • MSME Registration Eligibility: The article provides information on who can apply for MSME registration in India and the eligibility criteria.
  • Micro, Small, and Medium Enterprises (MSMEs): The registration process for MSMEs is classified based on investment and turnover limits.
  • Investment Limits: The investment limits for micro, small, and medium enterprises are provided, helping businesses determine their eligibility for MSME registration.
  • Turnover Limits: The turnover limits for micro, small, and medium enterprises are explained, giving businesses an understanding of whether they fall within the specified criteria for registration.
  • Aadhaar Number: The requirement of an Aadhaar number for the registration process and its significance in establishing the applicant’s identity.
  • Benefits of MSME Registration: The benefits of obtaining MSME registration, such as access to government schemes, subsidies, and incentives, are highlighted.
  • Registration Process: The MSME registration process involves steps, including online registration and document submission.
  • Supporting Documents: The documents required for MSME registration, such as an Aadhaar card, PAN card, and business address proof, are listed.
  • Importance of MSME Registration: The importance of MSME registration in availing various benefits, participating in government tenders, and gaining credibility in the market.

Our government has created the Ministry of MSME to provide an impetus for the MSMEs by promoting, facilitating, and developing their competitive spirit. Thankfully, MSMEs enable citizens of a nation to venture out on their own and give back to society by creating new jobs and diversifying an area’s gross domestic production (GDP). They have also slowly and steadily revived the artisan class in the far reaches of India by providing employment and access to loans and other services to the artisan class. Furthermore, MSMEs constantly support the upgradation of technology and infrastructure development and trigger the modernization of the country in general and our society in particular.

In terms of numbers, MSMEs contribute a staggering 30% to our country’s GDP, around 45% of the manufacturing output, and approximately 48% of the country’s exports.

It is due to this very fact that they are so crucial to our economic development and the reason why they have constantly been in the news ever since the COVID-19 pandemic struck in early 2020. However, as the pandemic subsides and the economy is slowly brought back to life, it presents a greater opportunity for business owners to get their MSME registration done and consequently avail of a wide array of benefits.

Eligible Categories for MSME

The eligible categories for MSME registration are proprietorships, Hindu undivided families, partnership firms, one-person companies, limited liability partnerships, private limited companies, limited companies, producer companies, associations, cooperative societies, or any other undertaking.

Industry-Specific Eligibility for MSME

In addition to the general eligibility criteria based on investment and turnover, there are certain industry-specific considerations for MSME registration. These considerations may vary depending on the nature of the business and the sector it operates in. Here are some examples of industry-specific eligibility factors for MSMEs:

  1. Manufacturing Sector:
    • Compliance with specific quality standards or certifications required for certain industries (e.g., ISO certification for food processing units).
    • Adherence to environmental and safety regulations applicable to manufacturing operations.
    • Inclusion of research and development (R&D) activities as part of the investment criteria for high-tech manufacturing sectors.
  2. Service Sector:
    • Qualifications, certifications, or licenses required for specific service-oriented industries (e.g., professional services, IT services, healthcare services).
    • Compliance with sector-specific regulations, such as those governing financial services, legal services, or healthcare practices.
    • Consideration of the specific nature of service offerings, such as creative industries, tourism, hospitality, or consultancy services.

Documents Required for MSME Registration

The only documents required for the MSME registration process are an Aadhaar card and a PAN card. Currently, the process of MSME registration is completely online, and no proof of documents is required. This is because the PAN and GST linked details on investment and turnover of enterprises that aspire to register will be pooled automatically by the Udyam Registration Portal from the corresponding government databases.

Step-by-Step Registration Process for MSME

MSME Registration in India

The process for MSME registration in India is relatively simple and can be completed online through the Udyam Registration portal. Here are the steps to follow for MSME registration:

  1. Go to the Udyam Registration portal at https://udyamregistration.gov.in/ and create an account using your Aadhaar number.
  2. Fill in the necessary details about your business, such as its name, address, type of organization, and bank details.
  3. Provide information about the investments made in plant and machinery or equipment for the manufacturing or service enterprise.
  4. Upload the required documents, including an Aadhaar card, PAN card, and bank statement.
  5. Verify the information provided and apply.
  6. Once the application is submitted, an acknowledgement with a unique registration number will be generated.
  7. The registration certificate with the Udyam Registration Number will be issued after due verification of the application.

It is important to note that there is no fee for MSME registration. The process is entirely free of charge. Also, businesses already registered under the previous Udyog Aadhaar Memorandum (UAM) need not re-register under the new Udyam Registration portal.

If you face any difficulties during the registration process or need assistance, you can seek the help of professional service providers like Kanakkupillai. Their team of experts can help you with the entire process of MSME registration, from filling out the application to the verification and issuance of the certificate, ensuring a hassle-free experience for you.

Classification of MSME

The existing MSME classification was based on the investment criteria in plant and machinery or equipment. Therefore, to enjoy the MSME benefits, the MSMEs must limit their investment to a lower limit, as specified in Table 1.

Table 1. Existing MSME classification

Sectors Criteria Micro Small Medium
Manufacturing Investment <₹25 lakhs <₹5 crores <₹10 crores
Services Investment <₹10 lakhs <₹2 crores <₹5 crores

However, under the Aatmanirbhar Bharat Abhiyan (ABA), the Government of India has revised the MSME classification by including composite criteria of both investment and annual turnover. Further, the distinction between the manufacturing and the services sectors under the MSME definition was eliminated. Table 2 includes the current revised MSME classification; however, it is pertinent to note here that both the investment and annual turnover are to be considered for deciding on an MSME.

Table 2. Revised MSME classification

Criteria Micro Small Medium
Investment and annual turnover <₹1 crore and <₹5 crores <₹10 crores and <₹50 crores <₹50 crores and <₹250 crores

Previously, the MSME registration process covered only manufacturing and service industries. However, in July 2021, the Government of India announced that the wholesale and retail trade would also come under the MSME classification and thus can apply for MSME registration of their wholesale/retail trade business, excluding motor vehicles and motorcycles. Thus, manufacturing and service industries and wholesale and retail trade are also covered under this revised classification. Hence, such industries can also apply for the MSME registration process.

The MSME’s online registration must be done on the government portal, udyamregistration.gov.in. Further, registration of the MSMEs can be done under the following two categories available in the portal:

  1. The first category is for new entrepreneurs who are not registered yet as MSME or those with entrepreneurs memorandum part-II (EM-II) and
  2. The second category is for those registering as Udyog Aadhaar Memorandum (UAM) and those already registered as UAM via assisted filing.

The new entrepreneurs and those with EM-II registration need to click the button “For New Entrepreneurs who are not Registered yet as MSME or those with EM-II” shown on the home page for registering MSME. New registration of MSME is carried out by entering the Aadhaar card and PAN numbers.

When clicking the button on the homepage of the government portal, it accordingly opens the page for registration. It asks the entrepreneur to enter the Aadhaar number and the name of the entrepreneur. After feeding these details, the “Validate and Generate OTP (one-time-password) Button” will be clicked. The PAN verification page opens once this button is clicked and OTP is received and entered.

However, the entrepreneur must enter the “Type of Organization” and the PAN number and click the “Validate PAN” button. The portal obtains the PAN details from the government databases and validates the PAN number of the entrepreneur. After verification of the PAN, the Udyam Registration form will appear, and the entrepreneurs need to fill in their enterprise’s personal details and details.

Once the details on the MSME registration form are filled in, the “Submit and Get Final OTP” button will be clicked. After that, the MSME online registration process will be completed, and a successful registration message with a reference number will appear. This reference number has to be noted down for future use. After verification of the MSME registration form, which may take a few days, the competent authority issues the Udyam Registration Certificate.

 

In the case of those entrepreneurs who already have registration as UAM, it is enough to click the button “For those having registration as UAM” or “For those already having registration as UAM through Assisted filing” shown on the home page of the government portal. This will take the entrepreneur to a new page wherein the Udyog Aadhaar Number is to be entered, and the entrepreneur should select an OTP option.

The options are to obtain OTP on mobile as filled in UAM or an OTP on email as filled UAM. After choosing the OTP Options, “Validate and Generate OTP” will be clicked. After entering OTP, registration details will be filled in on the MSME registration form, and thus the Udyam registration will be complete.

It is pertinent to indicate seven benefits of registering as an MSME in our country.

Benefits of MSME Registration:

  1. Bank loans (collateral-free)
  2. Subsidy on patent registration
  3. Overdraft interest rate exemption
  4. Industrial promotion subsidy eligibility
  5. Protection against payments (delayed payments)
  6. Fewer electricity bills
  7. ISO certification charges reimbursement

1. Bank loans (collateral-free)

The Government of India specified that collateral-free credit applies to all small and micro-business verticals. This initiative by our government ensures funds to both micro- and small-sector enterprises. Under this scheme, the previously registered and the new enterprises can avail of the benefits. The Credit Guarantee Trust Fund Scheme was introduced by the Government of India not single-handedly but in consultation and collaboration with the Small Industries Development Bank of India and the Ministry of MSME.

2. Subsidy on patent registration

Under the existing legislation, the MSMEs duly registered with the ministry stand to benefit from a 50% subsidy on their patent registration fees. This incentive motivates small businesses and firms to sustain innovation and handle new projects and technologies. Any MSME can avail of this subsidy by applying to the respective ministry.

3. Overdraft interest rate exemption

MSMEs are entitled to avail of a benefit of 1% on an overdraft of their business; however, the procedural details of the scheme usually vary from bank to bank. This option ensures small businesses’ safety, particularly during unfavourable markets or recessions.

4. Industrial promotion subsidy eligibility

Businesses are also eligible for subsidies for industrial promotion provided by the Government of India once registered with the ministry as MSMEs.

5. Protection against payments (delayed payments)

Given the current volatile economic scenario, MSMEs constantly face the risk of delayed payments, negatively impacting their business.

Therefore, to bail out the MSMEs in such a scenario, the Supreme Court of India had made it compulsory that any buyer of goods or services from the registered MSMEs has to honour the payment either before the due date or within 15 days from the date at which the buyer had accepted the goods or services. In the case of a default, the buyer must pay penal interest for the payment due as mandated by the Reserve Bank of India.

This will deter prospective buyers from delaying payment due to the MSME.

6. Fewer electricity bills

Based on their MSME Registration Certificate, all MSMEs are entitled to concessions on their electricity bill. This enables MSMEs to boost their production and accept more work orders without concern regarding capital expenditure on costs such as electricity and maintenance. A duly filled-in prescribed proforma and the certificate of registration are the two documents to be submitted by the MSME to the Department of Electricity.

7. ISO certification charges reimbursement

Any registered MSME can claim reimbursement of expenses to obtain an International Organization for Standards (ISO) certification. This motivates the MSMEs to have their respective businesses certified by the ISO; obviously, the ISO certification helps the MSMS to expand their business abroad, too, in terms of high-quality exports.

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Common Challenges and Solutions for MSMEs:

  1. Lack of Access to Finance:
    • Challenge: Due to limited collateral and financial history, MSMEs often struggle to access adequate funding and affordable credit.
    • Solution: MSMEs can explore alternative financing options such as microfinance institutions, crowdfunding platforms, government-backed schemes, and venture capital. Building a strong credit history, maintaining accurate financial records, and improving financial management practices can also increase the chances of securing funding.
  2. Compliance Burden:
    • Challenge: MSMEs may struggle with complying with various legal and regulatory requirements, including taxation, labour laws, and environmental regulations.
    • Solution: Seeking professional assistance from accountants, tax consultants, and legal experts can help MSMEs navigate compliance obligations effectively. Technology-based solutions and automation tools for record-keeping, tax filing, and compliance management can streamline processes and reduce errors.
  3. Limited Market Reach:
    • Challenge: MSMEs often face challenges in expanding their customer base and accessing new markets, especially in highly competitive industries.
    • Solution: MSMEs can leverage digital marketing strategies, e-commerce platforms, and social media to reach a wider audience and promote their products or services. Collaborating with other businesses, participating in trade fairs and exhibitions, and seeking government support for market development initiatives can also enhance market reach.
  4. Skilled Workforce:
    • Challenge: MSMEs may struggle to attract and retain skilled employees due to competition from larger organizations and limited employee training and development resources.
    • Solution: MSMEs can partner with educational institutions to access skilled graduates and offer internships or apprenticeship programs. Providing competitive salaries, offering flexible work arrangements, and investing in employee training and upskilling programs can help attract and retain talented individuals.
  5. Technological Advancements:
    • Challenge: MSMEs may face difficulties adopting new technologies and keeping up with digital advancements due to limited resources and a lack of technical expertise.
    • Solution: Seeking guidance from technology consultants and industry experts can assist MSMEs in identifying relevant technologies and implementing them efficiently. Collaborating with technology providers, participating in industry-specific workshops, and accessing government-funded technology adoption programs can also support technological advancements.
  6. Competition:
    • Challenge: MSMEs often encounter fierce competition from larger corporations with greater resources and market dominance.
    • Solution: MSMEs can focus on niche markets, differentiate their products or services through quality, innovation, or customization, and build strong customer relationships. Collaborating with other MSMEs to create collective bargaining power and accessing business development support from industry associations can also help overcome competition challenges.

Case Studies

  1. Case Study: ABC Clothing – Qualifying for MSME Registration based on Turnover

    ABC Clothing is a small apparel manufacturing company with an annual turnover of INR 50 lakhs. They fulfil the turnover criteria specified for micro-enterprises under the MSME definition. By obtaining MSME registration, ABC Clothing can avail of various benefits such as priority lending, government subsidies, and access to schemes supporting micro-enterprise growth.

  2. Case Study: XYZ Engineering – Qualifying for MSME Registration based on Investment

    XYZ Engineering is a medium-sized engineering firm that recently invested INR 2 crores in new plants and machinery. This investment meets the threshold specified for medium enterprises in the MSME definition. By registering as an MSME, XYZ Engineering becomes eligible for benefits like tax exemptions, reduced interest rates on loans, and assistance in technology upgradation.

  3. Case Study: PQR Crafts – Qualifying for MSME Registration based on Employment

    PQR Crafts is a handicrafts manufacturer employing 35 artisans. The employment criteria for small enterprises under the MSME definition are fulfilled. By obtaining MSME registration, PQR Crafts gains recognition for contributing to employment generation. It can access skill development programs, participate in government procurement opportunities, and receive marketing support to enhance its market presence.

Conclusion

In India, any business or enterprise that falls under the category of micro, small, or medium-sized enterprises (MSME) can apply for MSME registration online. The eligibility criteria for MSME registration are based on the investment in plant and machinery or equipment for manufacturing or service enterprises. MSME registration offers several benefits to businesses, such as easy access to credit, tax exemptions, and government subsidies.

To get your business registered under MSME, you can seek the assistance of Kanakkupillai, a one-stop destination for all your business registration needs. With its team of expert professionals, Kanakkupillai offers a hassle-free MSME registration process that takes care of all the necessary documentation and compliance requirements.

So, if you want to register your business under MSME, contact Kanakkupillai today and give it the boost it deserves!

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