Clarification issued on the Investment and Turnover for MSMEs Classification

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The government had recently introduced a new definition for Micro, Small, and Medium Enterprises (MSMEs). This was based on investment as well as turnover.

Government Introduces a New Definition of MSMEs


However, notification left MSMEs in dilemma on how to compute the investment and turnover figure. This is necessary to find out the correct MSME classification.

The notification was silent about what kind of investment shall be included or excluded. Besides, it was not clear as to what kind of revenue shall be included or excluded.

Now, the government has issued a fresh notification giving clarification on the computation of investment as well as turnover.


How to calculate the investment for MSME classification?

The government has given detailed guidelines for calculating investment for classification for MSMEs while Udyog Aadhaar MSME registration. Here are the guidelines.

  1. Only investment in plant and machinery or equipment shall be considered.
  2. The meaning of “plant and machinery or equipment”: This 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.
  3. The investment shall include only all tangible assets. This excludes land and building, furniture & fittings.
  4. The investment does not include any intangible assets such as goodwill, intellectual property, etc.
  5. Written down value of the aforesaid tangible assets shall be considered as mentioned in the latest ITR filing (i.e. 31st March).
  6. In case of a new enterprise, where no prior ITR is available, the investment shall be on the basis of self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
  7. The purchase (invoice) value of a plant and machinery or equipment, whether first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on the self-disclosure basis, if the enterprise is a new one without any ITR.
  8. The cost of certain items in the Explanation I to sub-section (1) of section 7 of the Act are out from the calculation of the amount of investment in plant and machinery. 

So this is how to calculate the total investment for the MSMEs while Udyog Aadhaar MSME registration.

If you require any other guidance with respect to the MSME registration or ITR filing, please feel free to contact our business advisors at 8881-069-069.

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