[Updated up to December 28, 2023, in terms of RBI circular dated 28.12.2023]
MSME stands for Micro, Small and Medium Enterprises. MSMEs are businesses that produce, process, and preserve goods and commodities. The government of India (GoI), vide Gazette Notification S.O. 2119 (E) dated June 26, 2020, has notified new criteria for classifying the enterprises as Micro, Small, and Medium enterprises. The new criteria will come into effect from July 1, 2020. There will be no more distinction between Manufacturing and Service MSMEs.
Consequent to the above notification, the definition of Micro, Small, and Medium enterprises shall be reclassified as per Section 7 (I) of the Micro Small and Medium Enterprises Development Act, 2006 based on the following composite criteria,(investment and turnover) namely:
- A micro-enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
- A small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees turnover does not exceed fifty crore rupees; and
- A medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
As per the latest circular, all the above enterprises are required to register online on the Udyam Registration portal and obtain a ‘Udyam Registration Certificate’. For PSL purposes banks shall be guided by the classification recorded in the Udyam Registration Certificate (URC).
On December 28, 2023, RBI issued a circular in respect of MSMEs amending certain earlier guidelines. Previously, on July 27, 2021, RBI notified to include Retail and Wholesale trade as MSMEs for the limited purpose of Priority Sector Lending and they would be allowed to be registered on Udyam Registration Portal for the following NIC Codes and activities mentioned against them:
| NIC code | Enterprises |
| 45 | Wholesale and retail trade and repair of motor vehicles and motorcycles |
| 46 | Retail trade except for motor vehicles and motorcycles |
| 47 | Retail trade except of motor vehicles and motorcycles |
Retail and Wholesale trade are included as MSMEs for the limited purpose of priority sector lending and are allowed to be
The certificate issued on the Udyam Assist Portal (UAP) to Informal Micro Enterprises (IMEs) shall be treated at par with the Udyam Registration Certificate to avail of Priority Sector Lending benefits. IMEs with a Udyam Assist Certificate shall be treated as micro-enterprises for PSL classification.
Once an enterprise crosses the ceiling limits specified for its present category in any of the two criteria investment or turnover, such entity will cease to exist in the same category and be placed in the next higher category. No enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover. All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.
General Credit Card (GCC) Facility:
Banks that are eligible to issue credit cards under the Master Direction -Credit Card and Debit card- Issuance and Conduct Directions, dated April 21, 2022 (as updated from time to time), may issue General Credit Cards to individuals/entities sanctioned working capital facilities for non-farm entrepreneurial activities which are eligible for classification under the priority sector guidelines. The terms and conditions of the credit facilities extended in the form of GCC shall be as per the Board approved policies of the banks, within the overall framework laid down by the Reserve Bank. Guidelines on collateral-free lending for micro and small units issued from time to time shall apply. Banks shall adhere to the instructions on reporting GCC data as issued by RBI from time to time.
Calculation of Investment:
The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, of 1961. In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR. The expression ‘’plant and machinery or equipment’’ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961, and shall include all tangible assets (other than land and building, furniture and fittings). The purchase (invoice) value of a plant and machinery or equipment, whether purchased first-hand or second-hand, shall be taken into account excluding Goods and Services Tax (GST), on the self-disclosure basis, if the enterprise is a new one without any ITR. In calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices, and such other items as specified in section 7(1) of MSME Act 2006 or as may be specified by notification shall be excluded.
Calculation of turnover:
- Exports of goods or services or both shall be excluded while calculating the turnover of any enterprise whether micro, small, or medium, for classification.
- Information as regards turnover and export turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.
- The turnover-related figures of such enterprises that do not have PAN will be considered on a self-declaration basis for a period up to 31st March 2021 and thereafter, PAN and GSTIN shall be mandatory.
Status of enterprise in case of upward change:
In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till the expiry of one year from the close of the year of registration. In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place.
The central bank’s communication dated July 2, 2020, informed that the above instructions supersede earlier guidelines dated April 4, 2007, except paragraph 6 relating to delayed payment to micro and small enterprises. Other aspects relating to the registration of enterprises, grievance redressal, etc. are mentioned in the Gazette Notification S.O. 2119 (E) dated June 26, 2020.
RBI said that in terms of the recommendations of the Prime Minister’s Task Force on MSMEs, banks are advised to achieve:
(i) 20 per cent year-on-year growth in credit to micro and small enterprises,
(ii) 10 per cent annual growth in the number of micro enterprise accounts and
(iii) 60 per cent of total lending to the MSE sector as of the corresponding quarter of the previous year to the micro-enterprises.
Source: RBI website
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