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Small businesses, here’s what you might miss out if not registered under MSME Act

August 28, 2019

 Government of India has enacted the Micro, Small and Medium Enterprises Development Act, 2006 (“Act”) that seeks to extend policy support for MSMEs.

The Act provides for the registration of MSMEs and process has been notified by the MSME ministry. Image: Reuters
 
By Rajat Prakash, Siddharth Mahajan
Micro, Small and Medium Enterprise (MSME) sector is the most significant sector of the Indian economy after agriculture. To achieve the target of India becoming a $5 trillion economy growth and development of MSME sector is critical. As per the National Sample Survey 2015-16, MSME sector created more than 11 crore jobs.
MSME Definition

Government of India has enacted the Micro, Small and Medium Enterprises Development Act, 2006 (“Act”) that seeks to extend policy support for MSMEs. It should be noted that under the Act, the term “Enterprise” includes both manufacturing and services enterprises and categorises them based on the value of plant and machinery and cost of equipment. Enterprises engaged in the manufacture or production, processing or preservation of goods where investment in plant and machinery does not exceed Rs 25 lakh are micro-enterprises; a small enterprise is an enterprise where the investment in plant and machinery is more than Rs 25 lakh but does not exceed Rs 5 crore; and a medium enterprise is an enterprise where the investment in plant and machinery is more than Rs 5 crore but does not exceed Rs 10 crore.

For enterprises engaged in providing services a micro enterprise is an enterprise where the investment in equipment does not exceed Rs 10 Lacs; a small enterprise is an enterprise where the investment in equipment is more than Rs 10 lakh but does not exceed Rs 2 crore; a medium enterprise is an enterprise where the investment in equipment is more than Rs 2 crore but does not exceed Rs 5 crore. The MSME ministry vide various notifications provided for certain exclusions while calculating the investment in plant and machinery and equipment in case of enterprises mentioned in the Act.

Filing UAM

The Act provides for the registration of MSMEs and process has been notified by the MSME ministry. For registration, one needs to file a Udyog Aadhaar Memorandum (UAM) which can be done online through the website or through the District Industry Centre if online filing is not possible. A UAM is generated upon registration. Certain information like the nature of activities, details of the promoters, address of the business, and other general information is required to be supplied while applying for UAM. In case an enterprise desire to update or change any information in the UAM, the same can be done easily through the said website itself. Any person or entity can be registered for the purpose of UAM.

Why Register

Although registration is not mandatory but it is advisable to get an enterprise registered under the MSME Act as it makes it easier to apply for government incentives, subsidies, tax rebates monetary advantages like reimbursement of expenses in infrastructure development, getting ISO or other international certification, reduced fee for IPR filings, availing priority sector lending from banks and also non-monetary benefits such as access to trade exhibitions abroad, promoting entrepreneurship development, etc. Businesses must note that they must deregister their MSME if the investment limit increases more than the limit prescribed under the Act or if the registered enterprise starts manufacturing any new item or items that require an industrial license or another kind of statutory license.

Besides benefits by the central government, various state governments also give incentives to MSMEs that include the development of specialized industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies, tax holidays, a partial refund of GST, reduced stamp duty and other support.

A major benefit available under the Act is that any buyer of goods/services that are manufactured/rendered by an MSME is liable to make payments of the same as per the timeline specified in any agreement between the said parties or otherwise within a period of 45 days. The Act contains provisions of delayed payment to micro and small enterprises. It directs the state governments to establish Micro and Small Enterprise Facilitation Council (MSEFC) for settlement of disputes with respect to the delayed payments. Any micro or small enterprise having valid UAM can avail this facility. Under the Act, every reference made to MSEFC has to be mandatorily decided within a period of ninety days from the date of making such a reference as per provisions of the act. In case of the appeal against the order of MSEFC the appellant (not being supplier) has to deposit 75 per cent of the award amount.

The government both at the central and state level recognising the importance of MSME sector have laid out various incentives for the growth of MSMEs and the same can be effectively availed by getting enterprises registered under the MSME Act.

(Rajat Prakash is Managing Partner and Siddharth Mahajan is Partner at Athena Legal. Views expressed are the authors’ own.)

 

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www.financialexpress.com/industry/sme/small-businesses-heres-what-you-might-miss-out-if-not-registered-under-msme-act/1688503/

 

 

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