In a Lok Sabha session held on Monday, a bill intended to change how businesses entities are classified was introduced by Giriraj Singh, the Minister of state for Micro, Small and Medium Enterprises (MSMEs). Currently, MSMEs are classified on the basis of the investments made in plant/machinery or equipment. With the introduction of the new bill, MSMEs will now be classified by the annual income of a company.
According to the revised guidelines of Section 7 of the 2006 MSME Act, businesses with an annual yield of upto 5 crore will be classified as ‘micro enterprises’, while businesses whose annual income is above 5 crores but less than 75 crores will be classified as a ‘small enterprise’. A ‘medium enterprise’ would be a business whose annual turnover is more than 75 crores, but less than 250 crores. The MSMEs Development amendment bill of 2015 was withdrawn after the minister took consent from the house of the people.
The bill was modified in light of revelations that often business owners often keep their investment sizes small, in order to retain the advantages of belonging to the MSME category. After assessing multiple alternatives, it was decided that considering the annual turnover of a company would be the best option, as the income can be pegged with reliable figures available from the Goods and Services Tax (GST) Network, providing adequate information regarding the growth of a company.
The new bill encourages ease of doing business, creates norms for growth-oriented classification criteria, and also aligns them with the new GST tax regime. As stated before in a press release by the Ministry of MSMEs, “The change in the norms of classification will enhance the ease of doing business. The consequent growth and will pave the way for increased direct and indirect employment in the MSME sector of the country.”