MSME classification: Understanding meaning and category benefits

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.

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:

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.

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.

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:

1. 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.
2. 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.
3. 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*.
4. Minimal documentation: Compared to traditional loans, our business loans have minimal documentation requirements, making the application process quick and hassle-free.
5. No collateral required: Our business loans are collateral-free, making them accessible to businesses without assets to pledge as collateral.

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.