Government changing definition of MSMEs to be in sync with GST

The government is changing the criteria to define micro, small and medium enterprises (MSMEs), to make these in sync with the goods and services tax (GST) regime, by making the norms common for good and services.

The announcement came on a day when the Reserve Bank of India announced some relief to the sector. But the change would be effective when the proposed amendments to the Micro, Small and Medium Enterprises Development Act, 2006, come into effect.

The decision, taken at the Cabinet meeting on Wednesday, classified MSMEs on the basis of their annual turnover. The current classification was based on investment in plant and machinery for goods companies and in equipment for services firms.

Micro enterprises would now be those with annual turnover of Rs 50 million. The earlier criteria for goods companies was investment of up to Rs 2.5 million in plant and machinery. For services companies, it was investment of Rs 1 million in equipment.

Those having annual turnover of Rs 50 million to Rs 750 million would be termed small enterprises. Earlier, goods companies were those with investment of Rs 250 million to Rs 500 million in plant and machinery. For services companies, the yardstick was investment of Rs 1 million to Rs 20 million in equipment.

Companies with annual turnover of Rs 750 million and up to Rs 2.5 billion would be classified as medium enterprises.

Earlier, goods enterprises were classified as medium if investments in plant and machinery were Rs 50 million to Rs 100 million. Investment beyond Rs 20 million and up to Rs 50 million was the criteria for the services sector.

The government said the decision would align the definition of MSMEs with the regime revolving around the GST, besides encouraging ease of doing business and making norms of classification growth oriented.