Who can apply for MSME registration – Eligibility criteria
In this blog, let us examine who can apply for the registration process of micro, small, and medium enterprises (MSME). Before proceeding further, let us understand the significance of MSMEs in our country’s economic prosperity.
In a developing country, such as India, MSME industries serve as the backbone of the economy. When the MSME industries grow, the economy of our country 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.
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 in turn, 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, 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 registrations done and consequently avail of a wide array of benefits.
Eligible categories for MSME
The eligible categories for MSME registration are proprietorships, Hindu undivided family, partnership firm, one-person company, limited liability partnership, private limited company, limited company, producer company, any association of persons, co-operative societies, or any other undertaking.
Documents required for MSME registration
The only documents required for the MSME registration process are Aadhaar card and PAN card. Currently, the process of MSME registration is completely online and no proof of documents is required. This is basically because the PAN and goods and services tax (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.
Classification of MSME
Earlier, the existing MSME classification was based purely on the criteria of investment in plant and machinery or equipment. Therefore, to enjoy the MSME benefits, the MSMEs have to limit their investment to a lower limit, as specified in Table 1.
Table 1. Existing MSME classification
|Manufacturing||Investment||<₹25 lakhs||<₹5 crores||<₹10 crores|
|Services||Investment||<₹10 lakhs||<₹2 crores||<₹5 crores|
However, currently, 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 done away with. 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 making a decision on an MSME.
Table 2. Revised MSME classification
|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 also will come under the ambit of MSME classification and thus can apply for MSME registration of their wholesale/retail trade business but excluding motor vehicles and motorcycles. Thus, manufacturing and service industries and wholesale and retail trade are also covered under this revised classification and hence such industries are also eligible to apply for the MSME registration process.
Online registration of the MSME has to 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:
- The first category is for new entrepreneurs who are not registered yet as MSME or those with entrepreneurs memorandum part-II (EM-II) and
- The second category is for those having registration as Udyog Aadhaar Memorandum (UAM) and also for those who already have registration as UAM via assisted filing
Both the new entrepreneurs and entrepreneurs who have 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 number and PAN number.
When hence clicked on the button on the homepage of the government portal, it accordingly opens the page for registration and 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” is to be clicked. Once this button is clicked and OTP is received and entered, the PAN verification page opens.
However, the entrepreneur must enter the “Type of Organization” and the PAN number and click on the “Validate PAN” button. The portal hence 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 the personal details and details of their enterprise.
Once the details on the MSME registration form are filled, the “Submit and Get Final OTP” button is to be clicked. Thereafter, the MSME online registration process will be completed and a message of successful registration 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 consequently will take the entrepreneur to a new page wherein the Udyog Aadhaar Number is to be entered and an OTP option should be selected by the entrepreneur.
The options provided are to obtain OTP on mobile as filled in UAM or obtain OTP on email as filled UAM. After choosing the OTP Options, “Validate and Generate OTP” is to be clicked. After entering OTP, registration details are to be filled on the MSME registration form, and thus the Udyam registration will be complete.
It is pertinent here to indicate that there are seven benefits of registering as an MSME in our country.
Seven benefits of MSME registration:
- Bank loans (collateral-free)
- Subsidy on patent registration
- Overdraft interest rate exemption
- Industrial promotion subsidy eligibility
- Protection against payments (delayed payments)
- Fewer electricity bills
- ISO certification charges reimbursement
1. Bank loans (collateral-free)
The collateral-free credit applies to all small and micro-business verticals as specified by the Government of India. This initiative by our government ensures funds to both micro- and small-sector enterprises. Under this scheme, both the previously registered and the new enterprises can avail the deemed 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 legislations, the MSMEs duly registered with the ministry stand to benefit from a 50% subsidy on their patent registration fees. This incentive motivates and encourages both 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 the safety of small businesses, particularly at times of unfavorable markets or recession.
4. Industrial promotion subsidy eligibility
Businesses are also eligible for subsidies for industrial promotion as provided by the Government of India once they are successfully 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, which consequentially impacts their business negatively in its entirety.
Therefore, to bail out the MSMEs in such a scenario, the Supreme Court of India has made it compulsory that any buyer of goods or services from the registered MSMEs has to honor 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 is obligated to pay penal interest for the payment due as mandated by the Reserve Bank of India.
This will deter a prospective buyer from delaying payment due to the concerned 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 any 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 that are to be submitted by the MSME to the department of electricity in this regard.
7. ISO certification charges reimbursement
Any registered MSME can claim reimbursement of the expenses that were made to obtain an International Organization for Standards (ISO) certification. Needless to say, 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.