MSMEs to now be defined based on annual revenues
NEW DELHI: THE MOVE IS IN ADDITION TO STEPS BEING TAKEN TO STIMULATE THE
MSME SECTOR’S GROWTH
The Union cabinet on Wednesday approved a proposal to redefine micro, small and medium enterprises, or MSMEs, based on their annual revenue, replacing the current definition that relies on self-declared investment on plant and machinery.
The move is expected to improve ease of doing business, avoid unnecessary inspections and at the same time enable the authorities to verify claims of businesses using the sales data they have from the GST Network, the company that processes goods and services tax (GST) returns.
“Taking turnover as a criterion can be pegged with reliable figures available, e.g., in GST Network and other methods of ascertaining, which will help in having a non-discretionary, transparent and objective criteria and will eliminate the need for inspections, make the classification system progressive and evolutionary,” said the statement.
The move is in addition to steps being taken to stimulate the MSME sector’s growth, including a cut in corporate tax from 30% to 25%, announced in the Union budget, and the Reserve Bank of India’s Wednesday decision to give a longer period to small businesses before classifying their loans as non-performing assets, or bad loans.
The central bank raised the repayment period before MSME loans are classified as bad loans from 90 days to 180 days.
According to the government’s new definition, businesses with revenue of as much as ₹5 crore will be called a micro enterprise, those with sales between ₹5 crore and ₹75 crore will be deemed as small and those with revenue between ₹75 crore and ₹250 crore will be classified as medium-sized enterprises. Finance minister Arun Jaitley proposed a 25% corporate tax rate for entities with sales of up to ₹250 crore in the budget.
Under the earlier definition, manufacturers with ₹25 lakh investment in plant and machinery were termed micro enterprises and those with investments between ₹25 lakh and ₹5 crore were regarded as small enterprises. Firms with investments of up to ₹10 crore are classified as medium.