Ministry of finance government of india with a view to provide several benefits and to create a large number of employment opportunities within india announced various relief measures especially for the micro, small and medium enterprise. To achieve this dream of creating a lot more employment in india it was felt necessary to widen the base of micro, small and medium enterprise so that more and more number of enterprise can be covered under this criteria and that they can avail the benefits as available to micro, small and medium enterprise.
In this process ministry of finance in its press release dated 13th of may, 2020, announced for change in the definition of micro, small and medium enterprise and thereby the existing criteria of classification on basis of investment in plant and machinery and equipment was changed to composite criteria of Investment and turnover and it also eliminated the difference between manufacturing and service sector enterprise. As per the press release maximum ceiling limit for the highest placed category was set at for investment up to rupees 20 crore and for turnover up to rupees 100 crore.
After the press release change in the definition of micro, small and medium enterprise was notified on date 1st of june, 2020 vide s.o. 1702 and the ceiling limit for the highest placed category was increased heavily and is set at for investment limit of up to rupees 50 crore and for turnover up to rupees 250 crore. This notification was made effective from 1st of july, 2020.
The intention of the government is very clear that it wants a large number of enterprise to get covered under the ambit of micro, small and medium enterprise category so that these enterprise can grow as only a growing business can create a large number of employment opportunities.
Now the Ministry has issued another notification on date 26th of june, 2020 vide s.o. 2119 providing clarification on various issues involved in the classification of an enterprise as micro and small and medium and it also provide for a procedure for registration known as udyam registration. It is made effective from 1st of july, 2020.
In this article we will be discussing this notification in a detailed manner in easy to understand language.
Basis and purpose of notification.
It notifies certain criteria for classifying the enterprises as micro, small and medium enterprise and specifies the form and procedure for filing the memorandum with effect from 1st of july, 2020.
Powers to issue this notification are conferred under section 7 read with section 7 and section 8 read with sec 8 of micro, small and medium enterprise development act, 2006.
Firstly criteria of investment and turnover.
Criteria of investment and turnover is a composite criteria and for any enterprise to be categorized as micro and small and medium enterprise it has to fall within that particular criteria as specified above.
If an enterprise crosses either of the criteria on investment and turnover ceiling limits as specified for its present category it will be moved and placed in the next higher category.
For example
Suppose presently enterprise a ltd has the investment of rupees 50 lakhs and turnover of rupees 3 crore then it will be categorized as micro enterprise.
But say its investment remains at rupees 50 lakhs but its turnover increase to rupees 6 crore then it will be moved and placed in next higher category and will be categorized as small enterprise.
Similarly if its investment increases to rupees 9 crore and its turnover increase to rupees 275 crore it will be out of the ambit of micro, small and medium enterprise as now its turnover ceiling limit has crossed the highest placed category that is medium enterprise and accordingly in this case enterprise a ltd will neither be classified as micro nor small nor medium enterprise.
Secondly aggregate value of investment and turnover is to be taken for classification.
It has been further clarified that for the purpose of deciding the category as micro , small and medium enterprise, the amount of turnover and amount of investment has to be seen in aggregate for the all the units under the same permanent account number.
In case where more than one goods and service tax identification number is registered under the same permanent account number all such unit and branch by whatever name called will be treated collectively as one enterprise and the turnover and Investment figure for all of such entity shall be taken together for classification of the enterprise.
Thirdly calculation of investment in plant and machinery and equipment
For existing running enterprise.
The calculation of investment in plant and machinery and equipment is linked to the income tax return of the previous years filed under the income tax act 1961.
The expression plant and machinery and equipment of the enterprise shall have the same meaning as assigned to the plant and machinery in the income tax rules 1962 framed under the income tax act 1961 and shall include all tangible assets. So it will include plants like ships and vehicle and scientific apparatus and surgical equipment.
For new enterprise.
In the case of a new enterprise where no prior income tax return is available the investment will be based on a self declaration of the promoter of the enterprise.
The purchase value of a plant and machinery and equipment whether purchased first hand and second hand shall be taken into account excluding goods and services tax charged. Since only goods services tax has been excluded from the value of plant and machinery and equipment any other tax and duty like custom duty paid on import will be included in its value.
Above relaxation shall end after the 31st of march of the financial year in which it files its first income tax return.
Exclusions from the amount of investment in plant and machinery.
Cost of certain items as specified in explanation 1 of Sec 7 of the micro, small and medium enterprise development act shall be excluded from the calculation of the amount of investment in plant and machinery.
Explanation 1 of the said section excludes the cost of pollution control and research and development and industrial safety devices and such other items as may be specified by notification.
Fourthly calculation of turnover.
For the purpose of classification and export of goods and service both, shall be excluded while calculating the turnover of the enterprise.
Information as regards turnover and exports turnover for an enterprise shall be linked to the income tax act and the central goods and services act and the goods services tax identification number.
If the enterprise do not have permanent account number, the turnover of such enterprise will be considered on self declaration basis. However this facility is available only for the period up to 31st of march, 2021, and thereafter permanent account number and goods services tax identification number shall be mandatory.