Udyam certificate provides access to cheaper credit: Check details here

If you don't have GSTIN, wait till further clarity on whether the same is mandatory for registration

Meera Shah (name changed) is a 40-plus entrepreneur from Mumbai. Recently, when she applied for a home loan, the lender asked her for the Udyam certificate as it would increase her chances of getting a loan. And she is in luck. On March 5, the government said entrepreneurs and proprietors who are exempted from filing goods and services tax (GST) returns can now register on the Udyam registration portal via their permanent account number. 

What is Udyam?

Udyam is a portal for the registration of micro, small and medium enterprises (MSMEs). To obtain Udyam registration, one has to apply on the Udyam registration portal and get the Udyam registration certificate (or MSME registration certificate).

Kapil Rana, founder-chairman of HostBooks, says: “This scheme was launched to provide maximum benefits to registered medium and small businesses, and industries.”  Any entity, be it a proprietary concern, individual firm, partnership firm, corporates, and even Limited Liability Partnerships (LLP) can register.

Gopal Bohra, partner at NA Shah Associates, says: “The business or service must be a part of the government’s National Industrial Classification Code, which includes 6,000 services, manufacturing and other activities. Most individuals and proprietors will get covered.” 

Cheaper loans

Getting an Udyam certificate offers several benefits. Bohra says, “Banks offer loans at lower interest rates. Lenders may at times also waive the collateral requirement.” 

Registration also opens up access to government e-tenders.

Archit Gupta, chief executive officer, Cleartax, adds, “Acquiring government tenders becomes easy as the Udyam registration portal is integrated with the government’s e-marketplace and various state government portals.”

You are also likely to be paid on time.

Rachit Sharma, deputy general manager, Taxmann, says, “Those who are registered are protected against defaults. Rules specify that payment for goods or services must be done within a 45-day credit period.”

Greater scrutiny of loan applications

Obtaining a loan, however, becomes more tedious as more documents have to be produced. Gupta says: “Since the collateral requirement is waived, the borrower needs to have a high credit score. Banks also verify more thoroughly.”

If you aspire to raise funds, be warned. 

As an Udyam holder, you cannot raise capital or funds by issuing shares or listing on the stock markets.

Rana says, “It is more advantageous for bigger entrepreneurs. For small entrepreneurs, freelancers, proprietors, or self-employed whose turnover is less than Rs 10 lakh, registering for Udyam can prove costly.”

The GSTIN question

A notification dated November 26, 2020, had made GST Identification Number (GSTIN) mandatory for those who wished to apply for Udyam. This was to be effective from April 1. 

On March 5, however, the government waived this requirement. 

Many business persons are exempt from filing GST returns and hence, don’t have GSTIN. Bohra says, “Those who have a turnover of Rs 40 lakh and below are exempt from GST.”  Complete clarity does not exist on what will happen after April 1 to people who don’t have GSTIN. Rana says, “According to the November rules, even small businessmen or freelancers — who don’t need to get GST number according to GST law — need to get GST number mandatorily from April 1. In that case, the cost incurred by such people on GST filing and other operations will rise.”

For now, wait and watch until there is clarity on the GSTIN aspect and then apply for Udyam. Those who have already applied but don’t have GSTIN should know that cancellation of Udyam is also free, paperless, and based on self-declaration.