MSME Registration Benefits & Tax Benefits for Business in India

The MSME Sector: Powering India’s Growth

Micro, Small and Medium Enterprises (MSMEs) contribute significantly to the nation’s GDP, generate vast employment opportunities, and foster innovation across various industries. Recognizing their critical role, the Government of India established the National Board for Micro, Small and Medium Enterprises (NBMSME) under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). MSMEs are the backbone of the Indian economy, playing a vital role in production, exports, and overall economic health. Their contributions are essential for the nation’s success. Recognizing this immense potential, the Government of India (GOI) has actively supported the MSME sector through various initiatives in recent years. In this article ahead, we explore various MSME Registration Benefits & Tax Benefits for Businesses in India. These maybe established business organizations or startups.

The NBMSME serves a three-fold purpose:

1. Examining Growth Factors: The NBMSME acts as a strategic advisor, constantly examining factors that impact MSME growth. This includes analyzing market trends, infrastructure needs, and policy regulations. By understanding these growth drivers, the NBMSME can advocate for policies and initiatives that directly benefit MSMEs.
2. Facilitating Benefits: Businesses registering under the MSME Act gain access to a multitude of advantages, including:

• Easier Access to Credit: While not all MSME loans are collateral-free, the NBMSME’s advocacy has led to schemes offering easier credit access with relaxed collateral requirements. This can significantly improve your MSME’s financial flexibility.
• Reduced Interest Burden: Some loan schemes provide exemptions on overdraft interest, easing your financial burden and allowing you to reinvest profits back into the business.
• Protection Against Delayed Payments (for Micro and Small Enterprises): Late payments can cripple cash flow. The NBMSME works towards initiatives that safeguard MSMEs from delayed customer payments, ensuring a smoother financial flow.
• A Voice for MSMEs: The NBMSME acts as a bridge between the government and MSMEs. By representing various MSME segments, including women entrepreneurs and regional associations, the NBMSME ensures your concerns are heard. This allows the government to tailor policies and programs that directly address the needs of MSMEs.

MSME Classification and Support

The MSMED Act further categorizes MSMEs based on their investment in plant and machinery (for manufacturing enterprises) or investment in equipment (for service enterprises), along with their annual turnover. This classification system allows the government to tailor support initiatives and benefits to the specific needs of each category. Here’s a breakdown of the MSME classification:

Enterprise Category	Investment in Plant & Machinery/Equipment	Turnover
Micro	Does not exceed INR 1 Crore	Does not exceed INR 5 Crore
Small	Does not exceed INR 10 Crore	Does not exceed INR 50 Crore
Medium	Does not exceed INR 50 Crore	Does not exceed INR 250 Crore

 

What is MSME Udyam Registration?

Udyam Registration is a free, online, and mandatory process for all MSMEs in India. It eliminates the complexities of earlier registration procedures by implementing a self-declaration system.  There’s no need to submit any documents or verification for registration. To streamline the registration process for MSMEs, the Government of India (GOI) implemented a user-friendly online system called Udyam Registration. Following the notification issued under the MSMED Act, any aspiring MSME owner can apply for a Udyam Registration Certificate (URC) – essentially an MSME registration certificate – through the Udyam registration portal. 

Steps for Udyam Registration:

The Udyam Registration process is simple and can be completed online through the official Udyam Registration portal (https://udyamregistration.gov.in/). Here’s a basic overview of the steps involved:

1. Visit the Udyam Registration portal.
2. Enter your Aadhaar number and PAN details.
3. Fill in the required information about your business, including its nature, activity, and investment details.
4. Self-declare your business category (Micro, Small, or Medium) based on the prescribed turnover criteria.
5. Submit the online application.

Upon successful registration, you’ll receive a URN electronically. This registration  never expires, eliminating the need for renewals.

What is the Benefit of MSME Registration in India?

To empower these crucial businesses, the Indian government offers a compelling incentive: MSME registration.

From easier access to credit to financial grants and subsidies, MSME registration offers a significant edge in today’s competitive marketplace. MSME registration unlocks a multitude of advantages designed to empower your business. These benefits can be categorized into key areas:

Financial Advantages:

• Reduced Interest Rates: MSMEs benefit from lower interest rates on loans and overdrafts compared to unregistered businesses. Government programs further subsidize interest costs, easing financial burdens.
• Easier Access to Credit: Registration facilitates access to collateral-free loans and government credit guarantee schemes, making it easier to secure funding at competitive rates.

Operational Improvements:

• Free or Discounted ISO Certification: Government schemes offer financial assistance for obtaining ISO Certification, a globally recognized symbol of quality that enhances brand image. 
• Electricity Bill Rebates: Reduce operational costs with rebates on electricity bills offered to registered MSME.
• Feasible Complaint Portal: The MSME Samadhan Portal empowers you to file complaints against delayed payments, ensuring a healthy cash flow.

Market Expansion Opportunities:

• Government Tender Participation: Registration facilitates participation in government tenders and e-Procurement marketplaces, expanding your customer base.
• Reduced Government Security Deposits: Waived security deposits for tenders ease the financial burden of bidding on government projects.
• International Trade Facilitation: Government support includes funding for attending international trade fairs, providing opportunities to gain global exposure.
• Marketing and Technology Upgradation: Government initiatives offer assistance with marketing and technology upgrades, propelling your business towards greater success.

Additional Benefits:

1. Industrial Promotion Subsidy: This subsidy assists in acquiring new technology and machinery, enhancing production processes, efficiency, and market competitiveness. 

By leveraging these comprehensive benefits, MSME registration empowers you to overcome financial hurdles, foster innovation, enhance credibility, and unlock new market opportunities. 

Tax Benefits of MSME Registration in India

MSME registration unlocks a treasure trove of tax benefits designed to incentivize and support small businesses in India.  These advantages translate to significant cost savings, improved cash flow, and a more competitive business environment. Let’s delve deeper into some key tax benefits:

• Reduced Taxable Income: Interest on business loans is deductible under Section 36(1)(iii) of the Income Tax Act, 1961, effectively reducing taxable income and potentially the overall tax liability.
• Increased Depreciation Benefits: For “Qualifying Assets” with extended readiness times, capitalized interest on borrowed funds can be added to the acquisition cost. This increases the base for depreciation deductions, reducing taxable income under the Income Tax Act.
• Employment Generation Incentive: Under Section 80JJAA of the Income Tax Act, MSMEs creating new jobs can claim deductions for additional employee costs.
• Tax Holiday for Specific Sectors (Limited Applicability): This benefit, relevant to manufacturing MSMEs in specific sectors like mineral oil and natural gas, offered a tax holiday under Section 80-IB. It’s important to note that this section has been phased out and now primarily applies only to certain older cases that are still under its tenure.
• Reduced Tax Rates: Manufacturing MSMEs can opt for a reduced corporate tax rate of 25% under Section 115BA if their turnover is under Rs 400 crore. This requires giving up various exemptions and deductions. Additionally, under Section 115BAA, any company, not restricted to MSMEs, can opt for a tax rate of 22% (effective rate approximately 25.17% including surcharges and cess), also with the forfeiture of most other tax exemptions and deductions.
• GST Composition Scheme: MSMEs with a turnover of up to INR 1.5 crore can benefit from the simplified GST Composition Scheme, reducing tax compliance burdens and offering lower tax rates.
• Capital Gains Tax Exemption: Section 54GB allows exemptions on capital gains tax if the gains from long-term asset sales are reinvested in eligible startups, subject to conditions.
• Investment Allowance: Under Section 32AC, businesses investing in new plant and machinery can claim an investment allowance, reducing taxable income.
• Maximizing Deductions: Routine business expenses like rent, salaries, and depreciation are deductible, which helps in further reducing taxable income.
• Startup India Tax Benefits: Startups, including those in the MSME sector, can avail of benefits like exemption from income tax for three consecutive years out of their first ten years under the Startup India initiative and capital gains tax exemption for investments in startups.
• Presumptive Taxation Scheme: For small businesses meeting certain conditions, the Presumptive Taxation Scheme under Section 44AD simplifies tax filings by allowing them to declare income at a prescribed rate on total turnover. The threshold for eligibility under this scheme was increased to INR 2 crore, not INR 3 crore.
• Timely Payment Incentive: The introduction of Section 43B(h) in the Income Tax Act incentivizes timely payments to MSMEs, allowing deductions for such payments only if they are made within the prescribed timeframe.
• Extended Carry Forward Period for MAT: The carry forward period for Minimum Alternate Tax (MAT) credit for MSMEs has been extended to 15 years, aiding in better financial planning and utilization of MAT credits.

By leveraging these tax benefits, MSME registration empowers you to retain more of your hard-earned profits, invest in growth, and contribute significantly to the Indian economy.

Conclusion

The MSME sector stands as a pillar of the Indian economy, not only bolstering economic growth but also fostering innovation and providing substantial employment opportunities. The Government of India, recognizing the sector’s potential, has put forth numerous initiatives under the MSME registration framework to support these enterprises. MSME registration offers a gateway to myriad opportunities that can transform a small or medium enterprise into a robust, competitive business. These opportunities range from financial benefits like easier access to credit and tax reliefs to operational advantages such as international trade facilitation and technological upgrades. As MSMEs continue to evolve, the continuous support from the government is vital to ensure their growth and sustainability, thereby powering India’s progress on a global scale.

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FAQ on MSME Registration Benefits & Tax Benefits for Business in India

Q1: What is MSME?
A: MSME stands for Micro, Small and Medium Enterprises. These businesses play a vital role in the Indian economy, contributing significantly to its growth and development. Entities are classified either as micro, small or medium on the basis of their turnover and investments.

Q2: What is The National Board for Micro, Small and Medium Enterprises (NBMSME)?
A: The NBMSME is a board established by the Government of India under the MSME Development Act, 2006. It works to examine the factors affecting promotion and development of MSME and recommends policies to the government for the growth of the MSME sector.

Q3: What are the benefits of registering under MSME?
A: The benefits of MSME registration include (a) easy access to collateral-free loans; ; (b) protection against delayed payments (only to micro and small enterprises); (c) subsidies on patent and trademark applications; (d) reimbursement of ISO certification charges; and (e) reduced electricity bills.

Q4: How can I register my business under MSME?
A: You can register your business under MSME by visiting the Udyam registration website and filing the registration form.

Q5: Can a business change its MSME classification after registration?
A: Yes, a business can change its MSME classification anytime (based on its growth and investment) through the Udyam registration portal.

Q6: What qualifies a business as an MSME in India?
A: Businesses are classified as Micro, Small, or Medium Enterprises based on investment in plant and machinery for manufacturing units or equipment for service units, along with annual turnover, according to the MSMED Act.

Q7: How does MSME registration help in tax reduction?
A: Registered MSMEs can avail themselves of various tax deductions such as increased depreciation, investment allowances, and specific incentives under the Income Tax Act, which reduce taxable income and overall tax liability.

Q8: Is MSME registration mandatory for all small and medium businesses?
A: While MSME registration is not mandatory, it is highly beneficial and recommended as it provides access to several government benefits, schemes, and subsidies designed to support business growth and sustainability.

Q9: Can MSME benefits be availed immediately after registration?
A: Most benefits can be availed immediately post-registration, although some might require specific conditions to be met or additional documentation, particularly those related to tax benefits or financial subsidies.