MSME / Udyam Registration in Vanagaram-Porur Road, Chennai

Sub-section (h) of Section 2 of the Micro, Small and Medium Enterprises Development Act 2006 defines the term enterprise as an industrial undertaking or a business concern or any other establishment engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act 1951, or engaged in providing or rendering of any service or services. It is to be noted that this definitional anchor decides which activity qualifies for classification as a micro, small or medium enterprise and, by extension, which activity may obtain a Udyam Registration certificate.

Sub-section (1) of Section 7 of the MSMED Act 2006, as substantively amended through Notification S.O. 2119(E) dated 26-06-2020, provides the composite criteria for classification of enterprises. An enterprise is classified as micro where investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees; as small where the corresponding figures do not exceed ten crore and fifty crore rupees; and as medium where they do not exceed fifty crore and two hundred fifty crore rupees respectively. Both the investment and turnover ceilings have to be satisfied simultaneously.

Section 8 of the Act prescribes the filing of a Memorandum by the enterprise. Following the regime change of 01-07-2020, this Memorandum has been replaced by the Udyam Registration filed online on the Udyam Registration Portal. Sub-section (1) of Section 8 read with Notification G.S.R. 621(E) dated 25-06-2020 lays down that the filing is paperless, based on self-declaration, and integrated with the PAN and GSTIN databases of the enterprise.

The Credit Guarantee Fund Trust for Micro and Small Enterprises administers the credit guarantee scheme that extends collateral-free credit to MSEs up to the prescribed ceiling per borrower. The guarantee coverage ranges from seventy-five per cent to eighty-five per cent of the amount in default, dependent on enterprise category and borrower constitution. Udyam Registration is the eligibility entry point for the lending institution to lodge the guarantee claim.

Section 405 of the Companies Act 2013 read with the Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order 2019 obligates every specified company having outstanding payments to micro or small enterprise suppliers for a period of more than forty-five days from the date of acceptance to file a half-yearly return in Form MSME-1 furnishing particulars of the dues and reasons for the delay. Returns for the periods ended 30 September and 31 March are due by 31 October and 30 April respectively.

Section 22 of the Act mandates that where any buyer is required to get its annual accounts audited under any law for the time being in force, such buyer shall furnish in the audited annual accounts the principal amount and the interest due thereon remaining unpaid to any supplier as at the end of each accounting year, the amount of interest paid by the buyer under Section 16, the amount of payments made beyond the appointed day, the amount of interest accrued and remaining unpaid, and the amount of further interest remaining due and payable.

What is Udyam Registration and why does it matter

Statutory basis under the MSMED Act 2006

Udyam Registration is the present-day formal recognition of an enterprise as a Micro, Small or Medium Enterprise under the Micro, Small and Medium Enterprises Development Act 2006 (the MSMED Act). The Act was enacted on the recommendation of the S.P. Gupta Study Group on Development of Small Enterprises and replaced the earlier industries-development legislation that had only recognised small-scale industrial units. The Udyam Registration regime itself was constituted by Notification S.O. 1702(E) of 26-06-2020 issued by the Ministry of Micro, Small and Medium Enterprises in exercise of powers under Section 7 read with Section 8 of the MSMED Act, supplemented by G.S.R.621(E) which established the Udyam Registration portal as the single window for the entire process. The certificate is a legal recognition; it is not a licence to do business, but it unlocks an entire suite of statutory, fiscal and procurement-related benefits.

Replacement of the earlier Udyog Aadhaar regime

The Udyam Registration regime replaced the earlier Udyog Aadhaar Memorandum (UAM) system, which itself had replaced the legacy SSI registration administered by the District Industries Centres. Udyog Aadhaar had been launched under the Empowered Group of Secretaries on MSME 2018 framework as a self-declaration regime, but it had structural weaknesses including duplicate registrations on the same PAN, weak verification, and no automatic data-linkage with the income-tax and GST databases. S.O. 1702(E) addressed each of these by mandating PAN-mapping, Aadhaar-authentication of the proprietor or authorised signatory, and a one-PAN-one-enterprise rule. Existing Udyog Aadhaar holders were given until 31-03-2022 (subsequently extended to 30-06-2022) to migrate to the new Udyam regime, failing which the old registration ceased to operate for any statutory purpose.

Economic significance and policy objective

The U.K. Sinha Committee Report 2019 on MSME finance documented that the MSME sector contributes approximately thirty per cent of national gross value added and is responsible for forty-five per cent of national manufacturing output and forty per cent of exports. The OECD SME Policy Index 2018 placed India in the middle band of comparable jurisdictions on the dimension of MSME formalisation, with the principal weakness being low coverage of the very-small and informal end of the sector. The policy objective of the Udyam regime is therefore twofold: to bring informal enterprises into the recorded universe through low-friction self-declaration, and to make the recorded universe legally bankable through automatic data-linkage with PAN, GST and TReDS, thereby reducing the credit-information asymmetry that has historically constrained MSME lending in India.

Udyam Registration for special enterprise structures

Section 8 companies and trusts

Companies incorporated under Section 8 of the Companies Act 2013 (formerly Section 25 of the 1956 Act) and trusts registered under the Indian Trusts Act 1882 or the relevant state public-trusts legislation are eligible for Udyam Registration to the extent that they carry on any economic activity. The non-profit character of these entities does not by itself disqualify them, since the MSMED Act applies to any enterprise engaged in any economic activity. The applicable PAN is the entity's PAN, the Aadhaar for authentication is that of the authorised office-bearer (Managing Trustee for a trust or Managing Director for a Section 8 company), and the entity-type is selected appropriately. Charitable trusts running educational, healthcare or vocational-training units have used this route to access PMFME, PMKVY and similar schemes.

Limited Liability Partnerships

Limited Liability Partnerships incorporated under the LLP Act 2008 are recognised as enterprises eligible for Udyam Registration. The applicable PAN is the LLP's PAN, the Aadhaar to be used for authentication is that of the designated partner identified as the authorised signatory, and the entity-type field on the portal is selected as Limited Liability Partnership. Investment-and-turnover figures are taken from the LLP's audited accounts and ITR-5. Many professional-services LLPs (law firms, accountancy firms and consultancy firms) qualify for Udyam Registration as service enterprises and accordingly enjoy Section 43B(h) protection in their corporate-client relationships, subject of course to satisfying the composite criteria of S.O. 1702(E).

Hindu Undivided Family

A Hindu Undivided Family carrying on business is recognised as an enterprise eligible for Udyam Registration. The applicable PAN is the HUF's PAN obtained under Section 139A of the Income Tax Act, and the Aadhaar to be used is that of the Karta of the HUF. Investment-and-turnover figures are taken from the HUF's books of account and ITR-2 or ITR-3 as the case may be. The entity-type field on the portal is selected as Hindu Undivided Family. Karta-succession events (death of the existing Karta and assumption of office by the next senior coparcener) need to be reflected through the change-of-particulars module on the portal, with the new Karta's Aadhaar replacing the previous one for authentication purposes.

Recent developments and reforms in the MSME framework

Trade extension and retail/wholesale Udyam

The Office Memorandum of 02-07-2021 issued by the Ministry of MSME extended Udyam Registration to retail and wholesale trade enterprises, with the explicit caveat that the extension is for the limited purpose of priority-sector lending under the RBI framework. The OM was issued in response to representations from trade associations and the Confederation of All India Traders, citing the cash-flow stress that the trade sector had experienced during the 2020 lockdown. Trade-Udyam holders do not enjoy Section 43B(h) protection, Public Procurement Policy benefits or CGTMSE cover, but they do benefit from PSL-tagged bank credit, which is the most material benefit for the working-capital-intensive trade sector.

Vivad se Vishwas for MSME — 2023 scheme

The Ministry of MSME announced a Vivad se Vishwas-I for MSMEs scheme on 17-04-2023 to settle pending contractual disputes between MSE suppliers and central-government departments and CPSEs. Under the scheme, the procuring entity refunds Performance Security and Bid Security forfeited during COVID-19, and waives liquidated damages levied on MSE suppliers for delayed performance during the period 19-02-2020 to 31-03-2022. The scheme was administered through the GeM portal with self-declaration by the MSE supplier and verification by the procuring entity, and the scheme window closed on 30-06-2023. While time-bound, the scheme established an important precedent for centralised MSME-dispute resolution outside the MSEFC framework.

Atmanirbhar Bharat package 2020 reforms

The Atmanirbhar Bharat Abhiyan announced in May 2020 introduced the most significant overhaul of the MSME framework since the MSMED Act of 2006. The key reforms included the composite investment-and-turnover criteria in S.O. 1702(E), the manufacturing-services parity discussed earlier, the migration from Udyog Aadhaar to Udyam Registration through G.S.R.621(E), an Emergency Credit Line Guarantee Scheme (ECLGS) covering MSME loans up to ₹3 lakh crore, a Fund-of-Funds-for-MSMEs ₹50000 crore equity-infusion vehicle, and the prohibition of global tenders in government procurement up to ₹200 crore (favouring domestic MSE bidders). The package was supplemented by sector-specific interventions including the PLI schemes in fourteen identified sectors with explicit MSME-participation targets.

Classification criteria under Notification S.O. 1702(E)

Manufacturing-services parity

The pre-2020 classification distinguished between manufacturing enterprises and service enterprises, with significantly lower thresholds for the latter. S.O. 1702(E) deliberately abolished this distinction in furtherance of the EGoS 2018 recommendation that policy treat the two sectors on parity. After 26-06-2020, the same composite limits of ₹1 crore / ₹5 crore (Micro), ₹10 crore / ₹50 crore (Small) and ₹50 crore / ₹250 crore (Medium) apply uniformly to manufacturing and services. The change materially expanded MSME coverage in the services sector, especially among IT and IT-enabled services, professional firms, healthcare and education, where the historical investment-based exclusion had kept large numbers of otherwise small economic units outside the MSME policy umbrella.

Investment-limb computation

The Explanation to S.O. 1702(E) directs that investment in plant and machinery or equipment is to be computed on the basis of the written-down value as appearing in the income-tax return filed under Section 139 of the Income Tax Act for the previous financial year. For a new enterprise in its first year of operation that has not yet filed an income-tax return, the investment is taken on a self-declaration basis on the Udyam portal, subject to subsequent verification against the first ITR. Items excluded from the computation are land and building, items pertaining to research and development, pollution-control equipment and industrial safety devices, mirroring the carve-outs that earlier applied under Notification S.O. 1722(E) of 05-10-2006. GST-component on the value of plant and machinery is also excluded.

Turnover-limb computation and export exclusion

The turnover limb is computed on the basis of the figures appearing in the income-tax return and the GST return for the previous financial year. The proviso to paragraph 4 of S.O. 1702(E) makes a critical concession: the value of exports of goods or services is excluded from the turnover figure for the purposes of MSME classification. The exclusion is intended to encourage export orientation among MSMEs and avoids penalising enterprises whose growth is export-led. The exclusion is however strictly confined to physical exports reflected in shipping bills and GSTR-1 Table 6A — it does not extend to deemed exports, supplies to merchant exporters or supplies to SEZs by a non-SEZ supplier, though it does cover exports of services that satisfy Section 2(6) of the IGST Act.

Udyam Assist Platform for informal micro enterprises

Aadhaar-PAN-GST trinity blocks proprietor registration

Trader category brought under Udyam from 02-07-2021

Udyam used for IT exemption claim under Section 80JJAA

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