New MSME Definition 2021

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In a nation like India with a population of about 1.3 billion, the Micro, Small, and Medium Enterprises (MSME) play an indispensable role in the country’s economy. The Micro, Small and Medium Enterprise Development (MSMED) Act, gives the provision of  collateral free bank loans, patent registration subsidy, overdraft interest exemption, protection against delayed payments and many more benefits for MSMEs. Any Micro, Small, or Medium enterprise which has a valid Udyog Aadhar (UAM) can apply for MSME according to MSMED Act, 2006.

Table of Contents

Old definition of MSME

According to the old MSME act of 2006, they defined a MSME based on the amount of capital investment as made in the area of machinery and plant and categorized them as either manufacturing or service enterprises. Important factors such as turnover of the organization were not incorporated, Below is the classification based on the old definition. 

ClassificationMicro Small Medium
Manufacturing EnterpriseInvestment < Rs. 25 lakhInvestment < Rs. 5 crInvestment < Rs. 10 cr
Services EnterpriseInvestment < Rs. 10 lakhInvestment < Rs. 2 crInvestment < Rs. 5 cr

New definition of MSME

In October 2019, Union Minister of India Mr. Nitin Gadkari revised the definition of Micro, Small, and Medium Enterprises (MSME). The new definition was implemented via an amendment that refined the business scenario for Indian enterprises. . The Union Cabinet of India approved the amendment to change the criteria to classify MSMEs from “Investment in Plant and Machinery” to “Annual Turnover”. Furthermore, there will not be any kind of distinction made between the service unit and the manufacturing base. This amendment was made under Atma-Nirbhar Bharat Abhiyaan Economic Package to suppress India’s economic predicament amidst the COVID-19 pandemic. 

ClassificationMicro Small Medium
Manufacturing and Services

Investment < Rs.1cr and
Turnover < Rs.5cr

Investment < Rs.10cr and
Turnover < Rs.50cr

Investment<Rs.20cr and

Benefits of New MSME Definition

Lower interest rate for loans

Due to the new amendment now MSMEs can easily avail of loans at a cheaper rate. The interest rate is very low around 1 to 1.5%. much lower than interest on current loans. They have introduced loans that can now only be availed by MSMEs that larger companies do not qualify for.. Such loans provided to MSMEs are often backed up by small business administrations. Even local banks can grant loans to MSMEs taking the loan amount into consideration.

Tax exemption for innovative startups

Innovative startups that have an annual turnover of less than 25 Crores in a financial year get a 100% Income Tax exemption on their profit. They are required to pay no income tax for 3 years out of 7 years by way of deductions. Any company up to 10 years in existence are considered a startup. This new amendment has given a boost to budding entrepreneurs looking to foray into their own businesses.  

Preference for tenders

The government has started announcing many tenders that can now only be fulfilled by MSMEs. Rolled out during their COVID 19 relief package, this amendment was made to curb issues of unfair competition for government tenders by global companies who are much larger in size and strength. This has given a boost to the domestic MSMEs who can now bid for tenders on an even keel. 

Protection against delayed payments

One of the most commonly faced problems by MSMEs is not receiving timely payments from their customers. This not only affects their operations but also their scope for growth. Post the new amendments the MSME ministry has given them the right to collect interest on late payment from their customers. Payment terms for this amendment are as follows, on or before the agreed payment date or 15 days post receipt of goods or services from the MSME. This gives MSMEs the confidence of receiving timely payments and deters buyers from delaying payments.

These are just a few of the major benefits of the new MSME definitions. A few more key announcements of Atma-Nirbhar Bharat Abhiyaan also include:

  • Rs 3 lakh crore collateral-free automatic loans for MSMEs
  • Rs 50,000 crore equity infusion through MSME Fund of Funds
  • Rs 20 crore subordinated debt for MSMEs
  • Extension of registration and completion date of real estate projects under RERA
  • Immediate pending refunds issuance to all non-charitable trusts

How To Register Your Business Under MSME?

Mentioned below are the details of documents required for MSME registration:

  • Business address, property tax slip and letter of allotment, and letter of possession.
  • Proof for the rented property (an agreement, rent receipts, and others).
  • Company registration proof.
  • Partnership deed and registration certificate (for a partnership firm).
  • Memorandum of Association and Articles of Association.
  • Copy of licenses, bill of machinery purchased, Aadhar card, cancelled cheque, PAN, documents for the social category of the applicant (SC, ST, or OBC), and physical fitness/disability certificate. 

Process of registration

  • The business owner needs to fill a single form online/offline
  • Visit https://www.msmeregistration.org/ remember to keep the documents handy.
  • The registration number is obtained after filling up the form.

The application process can be completed through:

Registration with PAN card

  • Click on the portal homepage, and enter the details of the Aadhaar number and the owner’s name.
  • Click on the ‘Validate and Generate OTP Button’.
  • Enter the OTP and a page opens for PAN verification after that.
  • Mobile numbers registered to PAN cards will receive all the details.
  • The applicant has to fill in the ITR details.
  • Click the button ‘Validate PAN’.
  • Udyam Registration appears and then the applicant needs to fill in the details of the enterprise.
  • On filling in the above details click on ‘Submit and Get Final OTP'. 
  • After the verification your registration is successful.

Registration without PAN card

  • Click on the key which says ‘For New Entrepreneurs who are not Registered yet as MSME’.
  • Fill in the details of the Aadhaar number and the applicant’s name. Then, click ‘Validate and Generate OTP’.
  • Click the ‘No’ option, if you do not have a PAN card.
  • Fill in personal details.
  • On filling in the above details click ‘Final Submit’ to complete the registration.

Registration for applicants previously having either EM-II or UAM

  • Select the button ‘For those having registration as EM-II or UAM’.
  • Enter the details of the Udyog Aadhar Number.
  • Click on ‘OTP’.
  • The next step is to click on ‘Validate and Generate OTP’. 
  • Fill in the OTP details. 

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The Ministry of MSME, which is the apex governing body for all laws and rules when it comes to micro, small and medium enterprises has brought about these amendments keeping the best interests of MSMEs in mind. MSME's are the wheels that are moving this nation forward and help in growing our economy. They should all take advantage of these benefits for the betterment and growth of their business.