Home company law MSMEs: Backbone of the Economy

MSMEs: Backbone of the Economy

What are MSMEs?

MSMEs, an acronym for Micros, Small, and Medium Enterprises are the building blocks of any developing nations’ economy. As per the MSME Development Act, 2006,

Revised Classification applicable w.e.f 1st July 2020
Composite Criteria: Investment in Plant & Machinery/equipment and Annual Turnover
ClassificationMicroSmallMedium
Manufacturing Enterprises and Enterprises rendering ServicesInvestment in Plant and Machinery or Equipment:
Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 crore
Investment in Plant and Machinery or Equipment:
Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 crore
Investment in Plant and Machinery or Equipment:
Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore
As per Notification dated 1st June 2020 and applicable from 1st July 2020
MSME

Why are MSMEs are Important?

Micro, Small, and Medium Enterprises (‘MSME’) play a crucial role in a developing country like India. MSME industries are in fact the backbone of the economy as has been quoted by many economists. The MSME sector contributes to roughly 45% of India’s total industrial employment, approximately 50% of India’s total exports and almost 95% of all industrial units of the country, and around 6000 types of products are manufactured in these industries. With the growth of MSMEs, the country’s economy grows as a whole and prospers.

The Micro, Small and Medium Enterprises Development Act was enacted in 2006 (MSMED) and aims at facilitating the promotion, development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. This Act provides for specific funds for promotion and development of these enterprises, progressive credit policies, economic and technical support and eased doing of business.

MSME Package: Relief provided by Government in times of Crisis

In 2020, the Covid-19 pandemic has threatened the Indian economy resulting in the possibility of a breakdown of the MSME sector. However, the Government of India has been quick to respond with measures to safeguard the MSME sector and announced the ‘Atmanirbhar Bharat scheme on 13 May 2020. As part of the scheme, the definition of MSME has been revised with an upwards revision as tabled above. By virtue of their registration as an MSME/SSI (‘Small Scale Industries’) under the MSMED Act, 2006 they are entitled to certain benefits. Some of the benefits are:

  • Collateral Free Bank Loans: The Government of India has recently notified that collateral-free credit shall be available to all companies in all small and micro-business sectors. This initiative ensures funds for MSMEs/SSIs. Under this initiative, existing as well as the new enterprises can claim the benefits enshrined herein. Trust by the name of the Credit Guarantee Trust Fund Scheme was introduced by the Government of India, Small Industries Development Bank of India and the Ministry of Micro, Small and Medium Enterprise Development to ensure this scheme is implemented for all MSMEs/SSI.
  • Patent Registration: A significant subsidy of 50% is given to registered MSMEs/SSIs. This subsidy can be availed for patent registration only by furnishing a copy of the application to the respective ministry.
  • Exemption of Interest Rates on Overdrafts: Registered MSMEs/SSIs are eligible to avail a benefit of 1% on overdrafts however the implementation of this scheme differs from bank to bank and clarity needs to be sought from the bank extending the overdraft facility.
  • Eligibility for Industrial Promotion Subsidy: The Government of India also ensures that registered MSMEs/SSIs are eligible for subsidies on amounts spent towards Industrial Promotion.
  • Protection against delayed payments: The Ministry of Micro, Small and Medium Enterprise, Government of India with the intention of providing support to these enterprises enshrined upon them the right to charge interest on the payments that are delayed from their buyers/customers. For the quick and easy settlement of such disputes, the government has issued guidelines advising such settlement must be done in minimum time through conciliation and arbitration and other such measures.
  • Concession on electricity bills: This fixed rate of concession is available to all registered MSMEs/SSIs by simply furnishing an application to the Electricity Department, such application shall be accompanied with a copy of the MSME/SSI registration obtained under the MSMED Act.
  • Reimbursement of ISO Certification charges: Any amount spent towards obtaining an ISO certification by registered MSMEs/SSIs is eligible for reimbursement from the Government of India on the filing of an application to that effect along with the requisite set of documentation.
  • Reduction in TCS/TDS:  A reduction of 25% on the existing rate on the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) from May 14, 2020, to March 31, 2021.
  • Extension in due dates of income tax returns and audit reports for FY 2019-20: Revised due dates for FY 2019-20 would be-
ParticularsDue Date for Audit ReportDue Date for Tax Return
Transfer Pricing Cases31 October 202030 November 2020
Non-Transfer Pricing but Tax/Other Audit Cases31 October 202030 November 2020
Other CasesN.A.30 November 2020
  • The Vivaad se Vishwas Scheme:Addressing disputes on indirect tax payments, has been extended till December 31, 2020. The Scheme details are at a high level as mentioned below:
Tax Payment madeIn appeals, writ, SLP, arbitration related to disputed taxIn appeals, writ, SLP, arbitration related to disputed penalty or interest or fee
On or before 31 December 2020100% of the disputed tax (125% in search cases) [waiver of interest & penalty]25% of the disputed penalty or interest or fee
After 31 December 2020110% of the disputed tax (135% in search cases) [waiver of interest & penalty]30% of the disputed penalty or interest or fee

Conclusion:

MSMEs are indeed the backbone of our economy and it is important for more and more small businesses to obtain the registration under the MSMED Act in order to be the beneficiaries of the aforementioned benefits. The Government of India is indeed taking the term ‘ease of business’ very seriously especially for MSMEs/SSIs and this is clearly visible from the benefits being offered to registered MSMEs/SSIs and even the recently announced economic stimulus package which has several policies that are designed specifically with MSMEs in mind.

Entities falling within the existing thresholds may get themselves registered at https://udyamregistration.gov.in/, to avail the above benefits.

Other details over MSMEs benefits and reliefs can be viewed: https://msme.gov.in/whatsnew/msme-package-final

This article is written by Mahima Rathod and edited by Rupreet Kaur Dhariwal.

Must Read

Constitutional Issues on Civic Space Legal Framework

Civil society uses universal suffrage to elect their representatives who when put together in the parliament are the lawmakers. They can make,...

Aeronautics and space: Airport noise regulations

Traveling! Exploring! Or just moving from one place to other for work is a part of everyone’s...

Modernisation

We all have seen our grandparents and at times even our parents telling us about how they...

Analysis Of Mergers and Acquisitions of Company

Acquisition and merger mostly occur when two companies agree to join their forces together. Both terms are often used interchangeably although there...

Related News

Constitutional Issues on Civic Space Legal Framework

Civil society uses universal suffrage to elect their representatives who when put together in the parliament are the lawmakers. They can make,...

Aeronautics and space: Airport noise regulations

Traveling! Exploring! Or just moving from one place to other for work is a part of everyone’s...

Modernisation

We all have seen our grandparents and at times even our parents telling us about how they...

Analysis Of Mergers and Acquisitions of Company

Acquisition and merger mostly occur when two companies agree to join their forces together. Both terms are often used interchangeably although there...

ICRC and Its Legality in War Crimes

RulesDefinition of War Crimes Rule 156.