New Criteria for the Classification of MSMEs
New Classification of MSMEs: The Union Cabinet of India has approved a major amendment in a law to classify the Micro, Small and Medium Enterprises (MSMEs). The Union Cabinet has approved the law to change the classification of MSME and the MSMEs will now be classified under the category named Annual Turnover under the Micro, Small and Medium Enterprises Act of 2006 from the category named Investment in Plant and Machinery.
Reason of Amendment
The Union Cabinet of India chaired by the prime minister of India has approved the amendments made to the MSME Act due to the following reasons.
- Growth Oriented Business: The amendment made to the law will ensure that more people are interested in the business sector of the country and the businesses will also be growth oriented as they are now classified under Annual Turnover.
- GST Tax System: The amendment has also been made so that the MSMEs classified under the Annual Turnover section currently can be easily aligned with the new tax system named Goods & Services Tax (GST).
- Cost Reduction: Based on the previous classification, the manufacturing and service procedures of the businesses were not classified properly and thusthese procedures made sure that the criteria named investment in plant in machinery specified self-declaration. Thus the businesses were forced to complete verification procedures and subsequently they had to bear more transaction costs.
- Reliability in Business: The new criterion will ensure that the businesses can be done in an easier way than before and it will also ensure a transparent procedure which will also be reliable as it will be aligned with the new tax regime named GST Network. It will also ensure that there is no need to introduce inspection and verification procedures.
- Progressive Business: The Union Cabinet wants to create a system under which the businesses will be advanced and evolutionary. Thus this amendment will clear all doubts which were present about the earlier classification procedures, thus more people will be encouraged towards doing businesses and it will also ensure a lot of employment opportunities for the MSMEs which in turn will help the country to change the economic scenario of the country.
Micro, Small and Medium Enterprises (MSMEs) are currently the largest job producing sector in India and thus the Union Cabinet has taken required initiatives to classify it properly so that it can be used to a good extent. Around 80% jobs in industry are provided by the MSMEs and thus this new classification will ensure more people are interested in doing business.