Registration of an MSME: FAQs | SupportBiz

Managing Growth

Registration of an MSME: FAQs

India has over 2.6 crore small and medium enterprises (MSMEs), which contribute nearly 35 per cent of the gross output in the manufacturing sector and almost 40 per cent of the country’s total exports.

The MSME sector is the largest employer of the country’s labour force, with over 32 million workers in various sectors such as agriculture, manufacturing, hospitality, healthcare and education, among others.

However, according to statistics available from 2006-2007 (Quick Results: Fourth All India Census of Micro, Small & Medium Enterprises), only 5.94 per cent of the total 261.01 lakh MSMEs in the country are registered.

How is an MSME defined?

With effect from October2006, MSMEs need to get themselves registered under the Micro, Small and Medium Enterprises (MSMED) Act 2006. Under the Act, MSMEs can be classified into three categories, as under:

Manufacturing Sector

Type of unit                          Investment in plant & machinery

Micro enterprises              Not more than Rs. 25 lakh

Small enterprises                Between Rs. 25 lakh and Rs. 5 crore

Medium enterprises         Between Rs. 5 crore and Rs. 10 crore

Service Sector

Type of unit                          Investment in equipment

Micro enterprises                  Not more than Rs. 10 lakh

Small enterprises                   Between Rs. 10 lakh and Rs. 2 crore

Medium enterprises              Between Rs. 2 crore and Rs. 5 crore

Why should an MSME get registered?

The MSME Ministry has several schemes that help in promoting the small industry, offering financial, tax, and other benefits to these units. Unregistered MSMEs can avail of financial help from banks and other institutions, but to obtain the benefit of the various benefits and schemes offered by the MSME Ministry, registration is essential.

Registration enables an MSME to take advantage of the following schemes offered by the central government:

·        Priority sector lending – Small and medium enterprises get loans at rates lesser than the market rates, especially those in agriculture and located in rural areas.

·        Credit Linked Capital Subsidy Scheme – This scheme helps MSMEs achieve technological up gradation (in case of production of government-approved products/sub-products). Under this scheme, a capital subsidy of 15 per cent or Rs. 15 lakh (whichever is lower) is offered on investment in plant & machinery approved by the government. The maximum limit for such investment has been capped at Rs. 1 crore.

·        Credit Guarantee Fund Trust For Micro and Small Enterprises (CGTMSE) – Under this scheme, banks offer finance of up to Rs. 100 lakh to MSMEs without any collateral security and/or third-party guarantee. Each bank has separate targets for financing of MSMEs under this scheme.

·        Procurement of raw materials and marketing activities –The National Small Industries Corporation (NSIC) helps MSMEs procure raw material for production, through arrangements with wholesale manufacturers. The NSIC also provides MSMEs assistance in bill discounting, exports, and promotional activities, as well as financial help for making payments to raw material suppliers.

·        Excise Exemption Scheme – MSMEs producing government-approved products/services can avail of exemption from paying excise duty under this act, or pay such duty at a concessional rate.

·        Reservation - The central government reserves certain products to be exclusively manufactured by MSMEs.

Apart from these schemes, there are certain facilities and incentives made available to MSMEs by their respective state governments. Commonly, only registered MSMEs can take advantage of such incentives and facilities, which largely pertain to tax subsidies, subsidies in power tariffs and capital investment, and the development of industrial estates.

How can an MSME get registered?

Here, it must be noted that the registration of MSMEs is not compulsory under law, except in case of medium enterprises involved in the production of goods. However, any kind of business falling into the above categories can choose to get themselves registered. This includes sole proprietary concerns, units managed by Hindu Undivided Families (HUF), partnership firms, co-operative societies, units run by an association of individuals, and units run by companies or undertakings.

An MSME, if it so chooses, should register itself with the District Industries Department of the place it is situated in. For this purpose, an Entrepreneurs Memorandum needs to be filled up–a document that is divided into two parts. The first part of the Memorandum should be filled up by MSMEs intending to start providing services or get involved in the production of goods, and submitted to the District Industries Centre.

The second part of the Memorandum should be filled by these MSMEs after they start production of goods or rendering of services, and submitted to the District Industries Centre. In case Part II of the Memorandum is not filed within two years of submission of Part I, the filing of Part I becomes invalid.

An entrepreneur is required to file a detailed project report about his/her business, for the purpose of registering it, along with the Entrepreneurs Memorandum. This project report should contain all important details about the business, such as the requirement of plant and machinery and other technology, types of raw material required and their availability, the requirement of land and building, market potential of the services/products produced, availability of finance, profitability of the venture, requirement of manpower, and the requirement of other utilities like power, steam and water.

The District Industries Centre, after a thorough checking of all the documents and considering the information in the project report submitted, grants a provisional license to suitable applicants.

If there is a chance in the investment in plant and machinery and/or products/services, or an addition to the products/services, the entrepreneurs who have already filed the Entrepreneurs Memorandum should provide written intimation about the same to the District Industries Centre within one month of the change.

Post-registration procedure

After registration, an MSME is provided an MSMED registration/entrepreneurs memorandum (EM) number. This number helps in the easy identification of MSME units, and should be printed by the concerned unit on its letterhead, bills, supply orders and other documents.