Union Cabinet approves proposal for amendment to MSME Development Act, 2006

The Union Cabinet on February 7, 2018 approved the proposal for amendment to the Micro, Small and Medium Enterprises Development (MSMED)  Act, 2006

One of the key amendments changes the basis of classifying Micro, Small and Medium enterprises to ‘annual turnover’ from ‘investment in plant & machinery/equipment’. This will encourage ease of doing business and align the enterprises to the new tax regime revolving around GST (Goods & Services Tax).

Amendments in the Section 7 of the Micro, Small and Medium Enterprises Development (MSMED)  Act, 2006
In order to bring about the above mentioned changes in the MSMED Act, Section 7 will be amended to define units producing goods and rendering services in terms of annual turnover as follows:

• A micro enterprise will be defined as a unit where the annual turnover does not exceed Rs 5 crore.

• A small enterprise will be defined as a unit where the annual turnover is more than Rs 5 crore but does not exceed Rs 75 crore.

• A medium enterprise will be defined as a unit where the annual turnover is more than Rs 75 crore but does not exceed Rs 250 crore.

• Additionally, the Central Government may, by notification, differ in the turnover limits, which shall not exceed thrice the limits specified in Section 7 of the MSMED Act.

Comment
At present, the MSMED Act (Section 7) classifies the Micro, Small and Medium Enterprises (MSMEs) on the basis of investment in plant and machinery for manufacturing units, and investment in equipment for service enterprises.

With the consideration of turnover figures as the basis of classifying MSMEs, more reliable figures will be available for GST Network and other methods, leading to transparency. It will, furthermore, eliminate the need for inspections, make the classification system progressive and evolutionary and will help in overcoming the uncertainties associated with the classification based on investment in plant.