The micro, small, and medium enterprises (MSME) sector plays a significant role in the economic growth of India. It contributes to job creation, innovation, and the overall development of the country. In 2020, the government revised the MSME classification and introduced new criteria to determine their eligibility. In this article, we will discuss the new MSME classification, and the benefits of being classified as an MSME.
Budget 2025-26 for MSMEs Classification
The latest revision of the MSME classification is important for both new businesses and existing ones:
Higher limits = More flexibility: Businesses no longer have to worry about exceeding the old thresholds too quickly. They can now invest in machinery, technology, and staff to become more competitive. Aspiring entrepreneurs planning to start new ventures under this revised framework can explore funding options such as startup business loans to support initial setup and growth. You can also check your business loan eligibility to understand what financial support you may qualify for.
Comprehensive assessment (Investment + Turnover): By considering turnover, the government ensures that the classification reflects a business’s actual market presence, not just its capital investment.
Reduced compliance burden: With clearer and more consistent definitions for both manufacturing and services, the paperwork and compliance process is now simpler.
Inclusive economic growth: By broadening the scope of MSMEs, more businesses can benefit from government support, such as credit guarantees, subsidies, and easier access to loans. If you want to explore quick financing, you can also check your pre-approved business loan offer to get an idea of instant loan options tailored for your business.
Key Features of Budget 2025-26 for MSMEs (February 2025)
Scheme for first-time entrepreneurs:
A new scheme will be launched for 5 lakh first-time entrepreneurs, including women, Scheduled Castes (SC), and Scheduled Tribes (ST). The scheme will provide term loans up to Rs. 2 crore over the next 5 years. These new schemes complement financial products like MSME loan, which cater specifically to small and medium-sized enterprises seeking capital for operations or expansion.
Manufacturing mission focus areas: The mission aims to focus on:
Focus area |
Description |
Ease and cost of doing business |
Simplifying business operations and reducing costs |
Future-ready workforce for in-demand jobs |
Creating a skilled workforce for future job markets |
A vibrant and dynamic MSME sector |
Strengthening and growing the MSME sector |
Availability of technology |
Ensuring access to modern technology |
Quality products |
Promoting high-quality manufacturing |
Clean tech manufacturing for climate-friendly development |
Encouraging eco-friendly manufacturing |
Revision in classification criteria for MSMEs:
Rs. in crore |
Investment |
Turnover |
Current |
Revised |
Current |
Micro enterprises |
1 |
2.5 |
Small enterprises |
10 |
25 |
Medium enterprises |
-- |
-- |
Revision in MSMEs Classification Criteria:
In the Union Budget 2025, the Government of India introduced a major revision to the MSME classification rules. Specifically, investment limits have been raised by 2.5 times, and turnover limits have been doubled. This change is designed to help MSMEs grow without losing access to important benefits and incentives, contributing to wider economic growth and more job opportunities.
Here is a quick look at the revised criteria according to the Union Budget 2025:
Enterprise Category |
Current Investment Limit |
Revised Investment Limit |
Current Turnover Limit |
Revised Turnover Limit |
Micro Enterprise |
Rs. 1 crore |
Rs. 2.5 crore |
Rs. 5 crore |
Rs. 10 crore |
Small Enterprise |
Rs. 10 crore |
Rs. 25 crore |
Rs. 50 crore |
Rs. 100 crore |
Medium Enterprise |
Rs. 50 crore |
Rs. 125 crore |
Rs. 250 crore |
Rs. 500 crore |
MSME classification
The new MSME classification, introduced in June 2020, is based on 2 parameters – investment in plant and machinery or equipment (for manufacturing and service enterprises) and turnover (for service enterprises). The revised classification is as follows:
Size of the enterprise |
Investment and annual turnover
|
Micro enterprises |
Investment less than Rs. 1 crore and turnover less than Rs. 5 crore |
Small enterprises |
Investment less than Rs. 10 crore and turnover up to Rs. 50 crore |
Medium enterprises |
Investment less than Rs. 20 crore and turnover up to Rs. 100 crore |
MSME classification table
The updated MSME definition, effective from 01.07.2020, relies on combined turnover and investment limits for plant, machinery, or equipment. These criteria apply uniformly to both manufacturing and service enterprises. Here’s how MSMEs are classified into micro, small, and medium categories. A personal loan for self-employed can offer much-needed financial support for business continuity.
- |
Net turnover is > 5 crore |
Net turnover > 5 crore but < |
Net turnover > 50 crore but <250 crore |
Net turnover surpasses |
The net investment does not surpass 1 crore. |
Micro Enterprise |
Small Enterprise |
Medium Enterprise |
Out of MSME fold (large enterprise) |
The net investment is >1 crore but <10 crore |
Small Enterprise |
Small Enterprise |
Medium Enterprise |
Out of MSME fold (large enterprise) |
The net investment is >10 crore but <50 crore |
Medium Enterprise |
Medium Enterprise |
Medium Enterprise |
Out of MSME fold (large enterprise) |
The net investment surpasses 50 crore |
Out of MSME fold (large enterprise) |
Out of MSME fold (large enterprise) |
Out of MSME fold (large enterprise) |
Out of MSME fold (large enterprise) |
New features of the new MSME classification
Here are some key points about the latest MSME classification system:
Turnover-based criteria: Businesses with an annual turnover of up to £250 million are classified as MSMEs. This change allows for more flexibility and inclusion of additional businesses, benefiting the economy.
Simplified business operations: The new MSME classification aims to simplify the registration process and reduce compliance burdens, making it easier to do business. It also removes the need for multiple registrations.
Unique ID number: A unique identification number will grant access to various government schemes and benefits, serving as a single reference for regulatory and compliance needs.
Support and incentives: The government has introduced measures to aid MSMEs, including reduced credit costs, subsidies for technology upgrades, and tax incentives.
Benefits of being classified as an MSME
Being classified as an MSME comes with several benefits, including:
- Access to credit and capital
Your business will have access to various government schemes and subsidies that can help them secure financing. You can be eligible for collateral-free loans under the credit guarantee fund scheme, which provides financial assistance to businesses without collateral.
- Tax benefits
Your business can avail of several tax benefits, including reduced tax rates under the Income Tax Act, GST exemptions, and exemptions under the startup India scheme.
- Marketing support
Your business can benefit from government schemes that provide marketing support, such as the trade-related entrepreneurship assistance and development (TREAD) scheme and the micro and small enterprises cluster development programme.
- Procurement benefits
You can get procurement preference under the government e-Marketplace (GeM) portal, which gives you access to government procurement contracts. This enables you to generate more revenue and grow your business.
Old MSME Classification (Pre-2025) vs. New Criteria
The updated classification system for businesses now depends on two key factors: how much is invested in plant and machinery (or equipment), and the company’s yearly turnover. Here’s a simple breakdown of the changes:
1. Micro enterprises
- Earlier: Investment up to Rs. 1 crore and turnover up to Rs. 5 crore.
- Now: Investment limit raised to Rs. 2.5 crore and turnover limit to Rs. 10 crore.
What this means:
- More small businesses, including startups and home-run ventures, can now be classified as micro-enterprises.
- Easier access to government schemes and subsidies made for micro businesses.
- Encourages new business owners to invest in machinery or technology without losing their micro-enterprise benefits.
2. Small enterprises
- Earlier: Investment up to Rs. 10 crore and turnover up to Rs. 50 crore.
- Now: Investment limit raised to Rs. 25 crore and turnover limit to Rs. 100 crore.
What this means:
- Micro and small businesses that want to grow can now expand without immediately moving into the next category.
- Helps with medium-level growth like hiring more people, producing more goods, or exploring new markets.
- Gives businesses more space to grow before they need to reclassify as medium enterprises.
3. Medium enterprises
- Earlier: Investment up to Rs. 50 crore and turnover up to Rs. 250 crore.
- Now: Investment limit raised to Rs. 125 crore and turnover limit to Rs. 500 crore.
What this means:
- Larger companies can still enjoy the benefits offered to MSMEs (Micro, Small, and Medium Enterprises).
- Makes Indian medium-sized businesses more competitive globally, which can help boost exports.
- Offers stronger support and incentives to encourage these companies to stay within the MSME system for longer.
Role of new MSME classification in India
Here's how the new MSME classification system is poised to foster entrepreneurship and self-employment in India:
- Boosting local manufacturing: The revamped MSME classification aligns with the vision of Atmanirbhar Bharat (Self-reliant India) by encouraging local manufacturing and reducing reliance on imports. The government incentivizes domestic production, aiming to diminish import dependency.
- Unlocking MSME potential: The updated classification facilitates MSMEs' access to credit, technology upgrades, and various governmental aids, unlocking their potential for growth and development.
- Access to skilled workforce: To bridge the skill gap in the MSME sector, the government has initiated schemes like the Skill India Mission, the Apprentices Act, and the Pradhan Mantri Kaushal Vikas Yojana, offering skill training and employment opportunities to youth and workers.
- Government assistance for MSMEs: Various government schemes such as the Credit Guarantee Scheme, the Prime Minister's Employment Generation Programme, and technology upgradation initiatives have been launched to enhance MSMEs' access to finance, technology, and skilled labour, fostering their growth and sustainability.
Impact of MSME classification on business loans
Banks and other financial institutions consider the MSME classification while determining the eligibility of a business loan. Being classified as an MSME increases the chances of getting a business loan as the government provides various schemes and subsidies to support MSMEs.
Bajaj Finance offers business loans for MSMEs, providing financial solutions to help businesses grow and flourish. With flexible repayment options, competitive interest rates, and quick disbursal, our business loans are designed to cater to the diverse needs of MSMEs.
Here are some of the features and benefits of our business loan:
- Flexible repayment options: We offer flexible repayment options ranging from 12 months to 96 months, making it easier for you to repay your loans without feeling the burden of a hefty EMI.
- Competitive interest rates: With competitive interest rates, our business loan is an affordable option for MSMEs. You can save on interest expenses and use the funds to grow your business.
- Quick disbursal: We offer quick disbursal of funds, ensuring that businesses have access to the funds they need to grow their operations. Once approved, the loan amount is disbursed within 48 hours*.
- Minimal documentation: Compared to traditional loans, our business loans have minimal documentation requirements, making the application process quick and hassle-free.
- No collateral required: Our business loans are collateral-free, making them accessible to businesses without assets to pledge as collateral.
Conclusions
Bajaj Finserv business loans provide a quick and hassle-free financing solution for MSMEs. With flexible repayment options, competitive interest rates, and minimal documentation requirements, our business loans are an attractive option for businesses looking to grow and expand their operations. Choose Bajaj Finserv as your financial partner and take the next step towards achieving your business goals.
