RBI clarifies the doubts on new Definition of MSMEs

Updated on 25.06.2021

(As per the new definition, Written Down Value (WDV) is at the end of the Financial Year as defined in the Income Tax Act and not cost of acquisition or original price, which was applicable in the context of the earlier classification criteria. All enterprises are required to register online and obtain a ‘Udyam Registration Certificate’)

RBI on Friday in a clarification on the new definition of MSME said that “The existing Entrepreneurs Memorandum (EM) Part II and Udyog Aadhaar Memorandum (UAMs) of the MSMEs obtained till June 30, 2020, shall remain valid till December 31, 2021”. The banking regulator also said that as per para 2 of the Gazette notification of June 2020, all enterprises are required to register online and obtain a ‘Udyam Registration Certificate’. Therefore all lenders are required to obtain a ‘Udyam Registration Certificate ’from the entrepreneurs.

The Central Bank had clarified that earlier provisions of the MSMED Act, 2006 for the classification of MSME based on the value of the plant and machinery are now superseded.  The documents to be relied upon now are  Written Down Value (WDV) as at the end of the Financial Year as defined in the Income Tax Act and not cost of acquisition or original price, which was applicable in the context of the earlier classification criteria.”Given the above, instructions contained in circular FIDD.MSME & NFS.BC.No.10/06.02.31/2017-18 dated July 13, 2017, on ‘Investment in plant and machinery for classification as Micro, Small and Medium Enterprises – documents to be relied upon are superseded” the circular said.

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.  According to the new gazette notification, there will be no more distinction between Manufacturing and Service MSMEs.

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, (i.e. based on 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

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