Introduction to Property Buying

Revised MSME Guidelines 2020

Revised MSME Guidelines 2020

In a historic move, the Ministry of MSME (Micro, Small and Medium Enterprises) has created new guidelines for both the classification and registration of MSMEs. This new guideline was implemented effective 1 July, 2020. So, what are the major changes that you should be in the know of. This article will help you understand these revisions and how it impacts you.

Revised MSME Definition

Unlike earlier guidelines, the new definition does away with the distinction between businesses involved in the manufacturing and service sectors. This essentially means that both the manufacturing and service sectors will come under a common definition. All businesses will be defined on a composite criteria of investment size and annual turnover. This means that a business, to be classified as an MSME, must fulfil both criteria i.e. Investment size and annual turnover must be met.

MSME New Definition
Composite Criteria: Investment and Annual Turnover
Classification Micro Small Medium
Investment Up to ₹1 Crore > ₹1 Crore – ₹10 Crore > ₹10 Crore – ₹50 Crore
Turnover Up to ₹5 Crore > ₹5 Crore – ₹50 Crore > ₹50 Crore – ₹250 Crore

Note: export sales not included in turnover for the purpose of the definition.

Benefits of The New Definition

To understand the benefits of the new MSME guidelines, it’s important to understand how banks and enterprises stand to gain.

Banks MSMEs
Better profitability due to enhanced size.  Helps improve quality of lending (fewer NPA). Avail benefits of economies of scale and increase profits.
Scope to increase lending portfolio Generate more employment with increased volume
Help to achieve priority sector lending targets. Implementation of latest technology
  Boost in exports through stronger sales

Features of The Guidelines

A notable feature of the new guideline is that it supersedes all earlier notifications for classifications and registrations of MSMEs. This means that entrepreneurs need only to refer to this notification that they may have. To add to that, the new guidelines states that an MSME will be known as an UDYAM, which is the Sanskrit word for enterprise. That brings us to the registration process which is called UDYAM Registration.

What is UDYAM Registration?

The Ministry of Micro, Small and Medium Enterprises has laid down clear guidelines for UDYAM registration. These guidelines are mentioned below.

  • UDYAM registration can be self-declared and online based.
  • UDYAM registration can be integrated with other systems including income tax and GST.
  • An enterprise must be registered with an 12 digit Aadhaar number, bank account details, and PAN and GSTIN numbers.
  • Investment in plant and machinery or equipment and turnover are basic criteria for the classification of an enterprise.
  • The export of goods or services shall be excluded when determining the turnover of an enterprise.

To register with UDYAM Registration, entrepreneurs must visit the official UDYAM website: https://udyamregistration.gov.in/Government-India/Ministry-MSME-registration.htm. It is important to keep all related documents handy before starting the registration process.

Why is it beneficial for a business to get UDYAM Registration?

There are a number of benefits of getting an UDYAM registration. These benefits are listed according to the schemes offered by the government for the development of Micro, Small and Medium enterprises. These benefits can only be availed by enterprises that have successfully completed the UDYAM registration process and obtained the MSME certificate.

  • Ease of getting registrations, licenses & approvals.
  • Exemption of stamp duty and registration fees.
  • ISO certification fees reimbursement.
  • Discounts on utility bills.
  • Eligibility for Industrial Promotion Subsidy (IPS) funding.
  • Opens up government tenders.
  • Provides bank loans at subsidized rates of interest.
  • Government security deposit (EMD) exemption
  • 15% import funding on fully automatic bank loans.
  • Barcode registration exemptions.
  • Patent registration exemptions.
  • Tariff subsidies on select levies.
  • Collateral loans from financial institutions and banks

Types of MSME Loans Available for Enterprises

Financing is a key element for a business to grow and expand operation. Entrepreneurs today have a number of different options when it comes to MSME loans.

  1. Working Capital Loans: These types of loans help MSMEs finance everyday operational expenses. This could be in the form of raw materials, salaries, utility payments, and other. These loans are great for the short-term and generally have very fixed tenors.
  2. Term Loans: This type of loan aims to help MSMEs expand on their existing setup. They can use the funds from term loans for capital expenditure or to purchase fixed assets. Secured Term loans are a good option as they offer lower interest rates and offer more security.
  3. Government Subsidised Loans: There are a number of government subsidised loans like the Credit Guarantee Fund Trust for Micro and Small Enterprise (CGTMSE) schemes that help new MSMEs get started. These types of loans do not require any collateral. The type of loan or interest rate that an enterprise may be eligible for differs based on various criteria like credit score, turnover, and others. For a smooth loan application process, calculate your loan eligibility at any of the leading bank websites to get details on loan eligibility.
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