What is the new Classification of MSMEs?

How MSMEs are classified?

The government has given a new turnover based classification of MSMEs in February 2018. As per this new classification, the MSMEs are categorized in term of business turnover. This is in place of the previous classification based on investment made in plant and machineries if they are operating in the manufacturing sector and investment in equipment for service sector companies. As per the new classification, the same turnover based criteria have been applied for all type of MSMEs including those operating in the services sector.

Though the primary responsibility of promotion and development of MSMEs is of the State Governments, the center has passed an Act in 2006 to empower the sector and also has formed a Ministry (Ministry of MSMEs).  It was the Micro, Small and Medium Enterprises Development (MSMED) Act which was notified in 2006 that defined the three tier of micro, small and medium enterprises and set investment limits. The new turnover criteria will better suit with the GST Network (GSTN) and other formats of segregating the MSMEs.

The new turnover based classification of MSMEs

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 will accordingly be amended to define units producing goods and rendering services in terms of annual turnover as follows:

  • A micro enterprise will be defined as a unit where the annual turnover does not exceed Rs 5 crores;
  • A small enterprise will be defined as a unit where the annual turnover is more than Rs 5 crore but does not exceed Rs 75 crore;
  • A medium enterprise will be defined as a unit where the annual turnover is more than Rs 75 crore rupees but does not exceed Rs 250 crore.

Additionally, the Central Government may, by notification, vary turnover limits, which shall not exceed thrice the limits specified in Section 7 of the MSMED Act.

Table: Classification of MSMEs

Classification of the MSMENew Classification (annual turnover)Previous classification – Ceiling on Investment in Plant and Machinery (in Rs)
MicroNot exceeding Rs 5 croresBelow 25 lakhs
SmallBetween Rs 5 crores to Rs 75 crores25 lakhs to 5 crores
MediumRs 75 to Rs 250 crores5 crores to 10 crores

Under the previous classification a separate methodology was adopted for service sector. Now the classification was made similar to the goods MSMEs as the general turnover-based criteria was made applicable to service sector also.

In 2015, the government has introduced an amendment bill to change the limit in all categories and it was adopted in February 2018.

Though the primary responsibility of promotion and development of MSMEs is of the State Governments, the center has passed an Act in 2006 to empower the sector and also has formed a Ministry (Ministry of MSMEs).