MSME - Registration Benefits and Tax Benefits

Why MSMEs Are Essential for Economic Growth

Micro, Small and Medium Enterprises (MSMEs) are crucial to India’s economy, contributing 30% of GDP, 45% of manufacturing output and over 48% of exports. Udyam Registration offers MSMEs access to loans, job creation and government support, boosting rural and urban growth and driving national progress.

What is Udyam Registration?

Udyam Registration is a system launched by the Government of India to register MSMEs online. Under the MSME Act, 2006, anyone planning to start an MSME can apply for a Udyam Registration Certificate (URC) through the digital portal. This registration offers key MSME registration benefits, such as access to loans, subsidies and government programs, enhancing the overall benefits of MSME for business growth and support.

What is MSME Classification?

MSME Classification categorizes Micro, Small and Medium Enterprises based on their investment and turnover. Understanding this classification helps businesses identify their status and avail themselves of relevant MSME registration benefits.

According to the 2020 revisions, the latest criteria are:

• Micro Enterprises:
  • Investment: Up to ₹ 1 Crore
  • Turnover: Up to ₹ 5 Crore
• Small Enterprises:
  • Investment: Up to ₹ 10 Crore
  • Turnover: Up to ₹ 50 Crore
• Medium Enterprises:
  • Investment: Up to ₹ 50 Crore
  • Turnover: Up to ₹ 250 Crore

These classifications are based on the total investment in plant and machinery or equipment combined with the annual turnover. Proper classification ensures that businesses can access the right benefits of MSME, such as easier loan approvals, subsidies and government support programs. Whether starting a new venture or expanding an existing one, knowing your MSME classification is essential for leveraging the full spectrum of MSME registration benefits available.

Key Features of Udyam Registration for MSME

• Unique Registration Number
  Each business receives a unique registration number upon successful registration, providing a distinct identity within the MSME sector.
• Digital Registration Certificate
  An online registration certificate is issued after completing the Udyam Registration process, making it easy for businesses to access and share their certificate digitally.
• Dynamic QR Code
  The registration certificate includes a dynamic QR Code that can be scanned to view the enterprise's details on our portal, ensuring transparency and easy verification.
• Mandatory for Loan Applications
  URC registration by MSMEs is required for processing loan applications by lending institutions, enhancing the MSME benefits and making access to funds easier.
• No Renewal Required
  Once registered, businesses do not need to renew their Udyam Registration, simplifying administrative processes and maintaining the benefits of MSME registration over time.
• Zero Registration Fee
  Registering for Udyam Registration is free of charge, allowing MSMEs to enjoy the benefits of MSM registration without any financial burden.

Eligibility Criteria for Udyam Registration

To qualify for Udyam Registration, your enterprise must meet specific criteria based on investment and turnover. These criteria ensure that businesses are correctly classified and can access the right MSME registration benefits.

Eligibility Overview

Key Points

• Micro Enterprises in the manufacturing sector must have an investment of up to ₹ 1 Crore and a turnover of up to ₹ 5 Crore in the service sector.
• Small Enterprises should have an investment between ₹ 1 Crore and ₹ 10 Crore in manufacturing, or a d turnover between ₹ 5 Crore and ₹ 50 Crore in services.
• Medium Enterprises require an investment of ₹ 10 Crore to ₹ 50 Crore in manufacturing or a turnover of ₹ 50 Crore to ₹ 250 Crore in the service sector.

Meeting these eligibility criteria is essential to enjoy the full benefits of MSME registration, such as easier access to loans, subsidies and government support.

Documents Required for Udyam Registration

Registering for Udyam Registration is a simple and paperless process. You only need a few essential documents to complete your application and start benefiting from MSME benefits.

Essential Documents

• Aadhaar Card: Proof of identity for the business owner.
• PAN Card: Permanent Account Number for financial transactions.
• GSTIN: Goods and Services Tax Identification Number, if applicable.

Additional Basic Details

Along with the key documents, you need to provide the following information during registration:

• Basic Business Information: Name, type of organisation and location of your enterprise.
• Property Details:
  • Self-Owned Properties: Property tax receipts.
  • Rented Properties: Owner’s No Objection Certificate (NOC), rent receipts and utility bills.
• Bank Account Details: Information for financial verification.
• Classification Information: Based on your enterprise’s size and type.
• Investment/Turnover Details: Financial data to determine your MSME classification.
• Partnership Deed: If your business is a partnership firm.
• Articles of Association (AoA) and Memorandum of Association (MoA): For incorporated businesses.

Having these documents ready will make your Udyam Registration process smooth and ensure you can quickly access the benefits of MSME registration.

Steps to Register an MSME on the Udyam Portal

Registering your MSME through the Udyam Portal is straightforward and can be completed online. Follow these simple steps to obtain your Udyam Registration Certificate and unlock various MSME registration benefits.

Steps to Register an MSME on the Udyam Portal

1. Visit the Official Udyam Registration Portal
   Go to the Udyam Registration website to start your registration process.
2. Provide Aadhaar Number
   Enter your Aadhaar number to validate your identity and begin the registration.
3. Fill in Enterprise Details
   Complete the required fields with your business name, type of organisation and location.
4. Enter Bank Account Information
   Input your enterprise’s bank account details for verification purposes.
5. Select National Industry Classification (NIC) Code
   Choose the appropriate NIC code that matches your business activities to ensure accurate classification.
6. Review and Submit
   Carefully review all the entered information to ensure accuracy, then submit the Udyam Registration form for processing.
7. Receive Registration Certificate
   Once approved, you will receive your Udyam Registration Certificate (URC) online, which includes a dynamic QR Code for easy verification.

Benefits of Udyam Registration to MSME

MSMEs enjoy various Udyam registration benefits. Some of these important MSME registration benefits are enumerated below.

• Collateral - Free Bank Loans, including credit guarantee scheme introduced by the GOI, SIDBI and Ministry of MSME
• Access to International Trade – The GOI funds business delegates to attend international trade shows, exhibitions, business meetings and seminars/conferences held worldwide, which facilitate global exposure and expertise
• Reduced rate of interest on loans from banks – MSME registered businesses benefit from lower rates of interest as compared to other enterprises, which provides a competitive advantage
• Subsidy on Patent registration to continue developing novel ideas and technologies
• Protection against delayed payments – The MSME Act, 2006, provides that MSME payments be made within 15/45 days of invoice/billing, which provides a clear advantage of cash flow management
• MSME with registration qualifies for electricity bill concession
• Reimbursement of ISO certification
• Marketing and promotion assistance from GOI
• Technology upgradation support from GOI

All the benefits of Udyam registration for MSMEs are intended to grow the MSME's commercial and entrepreneurial potential, which also augurs well for Indian economic growth.

Tax Benefits of MSME

MSMEs are a top priority for the Government of India due to their vital role in the economy. The MSME tax benefits offer significant advantages, enhancing the overall MSME benefits and benefits of MSME registration. These tax incentives help businesses grow and succeed.

• Deduction of Interest Expense: Interest on business loans availed by MSME for various purposes such as working capital, expansion or investment is a deductible expense u/s 36(1)(iii) of the Income Tax Act, 1961, while computing taxable income for income tax purpose. This reduction in taxable income can lead to a lower tax liability, thereby leading to potential tax savings for the business.
• Increased Cost of Acquisition of Qualifying Asset: 'Qualifying Assets' are those requiring a substantial time for readiness. The interest on funds borrowed for such assets is capitalised, enhancing the acquisition cost. This offers tax advantages for MSMEs, enabling increased depreciation and potentially lowering capital gains upon asset sale under the Income Tax Act of 1961.

Other Tax Implications of MSME

• Income tax deduction is available to MSME businesses under Section 80JJAA of the Income Tax Act in respect of generating additional employment to prescribed new employees
• A tax holiday exemption is available to MSMEs that produce products like mineral oil, natural gas and fertilisers under Section 80-IB. The tax holiday is available to MSMEs for 5 years from the year of commencement of production.
• MSMEs can opt for a lower tax regime at a rate of 25% under Section 115BAA.
• The Goods and Services Tax (GST@) system offers the Composition Scheme to MSMEs with an annual revenue exceeding INR 1.5 Crores
• If the MSME invests its capital gains from the sale of a long-term asset in the equity shares of a qualified startup, Section 54GB exempts it from capital gains tax
• MSMEs that invest in plant and machinery/equipment can claim an investment allowance of 15% under Section 32AC.
• MSMEs can maximise tax benefits by deducting legitimate business expenses like rent, salaries, depreciation (including additional depreciation) and other administrative expenses.
• The Startup India initiative offers a range of tax benefits to startups operating in the MSME sector. These advantages could include exclusions from capital gains tax on investments made by qualified investors and an income tax vacation for a predetermined period of years.
• Under section 44AD, eligible MSMEs can choose the Presumptive Taxation Scheme. This relieves MSMEs of the need to keep thorough books of accounts, lessening compliance stress and may result in a lower tax liability. The Finance Act 2023 had increased the threshold limit from INR 2 Crore to INR 3 Crore for ease of compliance of MSME
• The Finance Act of 2023 introduced Section 43B(h) to promote timely payment to MSMEs. Tax deductions for payments made to MSMEs can be claimed only when the payments have been made within the time prescribed under the MSME Development Act. This will improve the working capital of the MSMEs.

Frequently Asked Questions

1. What are the primary benefits of MSME registration?

MSME registration provides numerous MSME benefits, including easier access to loans, government subsidies and grants. It also offers protection against delayed payments and eligibility for various government schemes, enhancing the overall MSME registration benefits and supporting business growth.

2. What tax benefits are available for MSME-registered businesses?

MSME-registered businesses can enjoy MSME tax benefits such as lower income tax rates, tax exemptions for the initial years and deductions on investments in plant and machinery. These MSME benefits help reduce the tax burden and increase profitability.

3. Does MSME registration help in securing loans?

Yes, MSME registration benefits include easier access to loans with lower interest rates. Banks and financial institutions prefer lending to registered MSMEs, making it simpler to secure funding for business expansion and operational needs.

4. What is Udyam Registration and how is it related to MSME benefits?

Udyam Registration is the official process to register as an MSME in India. It unlocks various MSME registration benefits, such as access to financial aid, subsidies and government programs, thereby enhancing the benefits of MSME for your business.

5. Can a new startup apply for MSME registration?

Yes, new startups can apply for MSME registration benefits through Udyam Registration. Registering as an MSME provides startups with access to essential resources, financial support and government schemes that aid in their growth and sustainability.

6. Are service-based businesses eligible for MSME registration?

Yes, service-based businesses are eligible for MSME registration benefits. Whether you offer IT services, consulting, or any other service, registering as an MSME allows you to take advantage of financial incentives and government support tailored for service enterprises.

7. Is MSME registration mandatory for small businesses?

No, MSME registration is not mandatory for small businesses. However, registering as an MSME provides significant MSME benefits, such as easier access to loans, tax advantages and eligibility for various government schemes, making it highly beneficial for business growth.