MSME’s likely to be classified as per turnover and not as per investment in plant and machinery / equipment, Lok Sabha passes 2018 Amendment Bill
The Monsoon Session of the Parliament is deliberating on many new upcoming changes in law. One of which is the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018 (“Bill”). The Bill has been introduced in the Lok Sabha on 23rd July, 2018 as per recent press releases. It is withdrawing the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015 and is amending the Micro, Small and Medium Enterprises Development Act, 2006 (“Act”).
The key changes under the Bill is the change in classification of Micro Small and Medium Enterprises (“MSME”). MSME’s are proposed to be classified on the basis of turnover, instead of investment in plant and machinery / equipment.
The present position of classification based on investment in plant and machinery had some disadvantages:
- it entails physical verification having associated transaction costs.
- it incentivises the tendency in the promoters of the enterprises to keep their investment size small in order to retain the benefits associated with micro or small enterprises category.
This change will encourage ease of doing business and make the norms of classification growth oriented, transparent and non-discretionary.
Following are the proposed changes to Section 7 of the Act:
- A micro enterprise will be defined as a unit where the annual turnover does not exceed five crore rupees;
- A small enterprise will be defined as a unit where the annual turnover is more than five crore rupees but does not exceed Rs 75 crore;
- A medium enterprise will be defined as a unit where the annual turnover is more than seventy-five crore rupees but does not exceed Rs 250 crore.
Additionally, the Bill confers power to the Central Government to notify changes in the turnover limits, which shall not exceed thrice the limits specified above.
The above change, will provide flexibility to the Government to fine-tune the classification of MSMEs in response to changing economic scenario without resorting to constant amendments of the Act.
Source: Lok Sabha