Explains MSME Full Form and Benefits for Small Businesses

Micro, small, and medium enterprises have remained the economic backbone of India for decades. While small in scale, these enterprises play a critical role in creating jobs, enhancing growth in various product segments, and boosting the nation’s GDP. As of 2024, MSMEs contributed to 30% of the nation’s Gross Domestic Product, 45% of its manufacturing output, and 48% of its exports. Given the pivotal role of MSMEs in the Indian economy, the Indian Government has introduced various initiatives to boost the potential of this sector. Qualifying small businesses can apply for an MSME registration online to tap into various benefits like preferential MSME loan interest rate, collateral-free credit, tax exemptions, and more. This article outlines the meaning of MSMEs and highlights the benefits of securing an MSME registration for small businesses.
Understanding the Meaning of MSME
Introduced in accordance with the MSMED Act of 2006, MSME is an acronym used for Micro, Small, and Medium Enterprises that are engaged in the production, manufacturing, processing, or preservation of goods. The Indian government amended the MSMED Act to revise the classification regulations. With effect from 1st July 2020, MSMEs are now classified on the basis of their annual turnover and total investment in plants, machinery, and equipment. Here’s a break-down of the MSME classification currently in effect:
- Micro enterprises: Micro enterprises are companies with investments of up to Rs. 1 Crore in plants and machinery or equipment with an annual turnover of less than Rs. 5 Crore.
- Small enterprises: Small enterprises are defined as companies with investment of up to Rs. 10 Crore in plants and machinery or equipment and an annual turnover of up to Rs. 50 Crore.
- Medium enterprises: Medium enterprises are companies with an investment of up to Rs. 50 Crores in plants and machinery or equipment and an annual turnover of not more than Rs. 250 Crores.
What is an MSME Registration?
All entities that fulfil the revised MSME classification criteria outlined above can apply for an MSME registration online through the dedicated Udyam portal. Upon successful registration, an MSME registration certificate is issued to the company granting recognition under the MSMED Act of 2006. While it is not mandatory for MSMEs to obtain this registration, it is beneficial for a business. Enterprises with an MSME registration certificate can access various perks including subsidies, lower MSME loan interest rates, tax exemptions, and access to government tenders reserved for small businesses.
Benefits of Obtaining an MSME Registration
Obtaining an MSME registration certificate through the Udyam portal is beneficial for a small business in the following ways:
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Collateral-Free Loans
Enterprises with an MSME registration certificate can enjoy easy access to capital with collateral-free MSME business loans through various government schemes. The Indian Government introduced the Credit Guarantee Scheme for Micro and Small Enterprises to ensure easy flow of credit to MSEs. The Scheme offers credit guarantees of up to Rs. 5 Crore to member lending institutions like private and public banks for collateral-free MSME loans extended to eligible enterprises.
Preferential MSME Loan Interest Rates
Small businesses with an MSME-registration also enjoy preferential interest rates on loans. According to the government’s guidelines, lending institutions offer priority credit to the MSME sector to help it grow and flourish. As a result, businesses applying for an MSME loan qualify for credit at a relatively lower interest rate. With low MSME loan interest rates, small businesses can easily fund expansion and growth plans without worrying about a hefty repayment burden.
However, since lenders use MSME registration certificates to determine who is eligible for an MSME loan, signing up on the Udyam portal is essential.
Access to International Trade
Apart from easy access to credit, an MSME registration certificate also allows small businesses to broaden their exposure with access to international trade. Registered MSMEs can have their business delegations funded to attend various international trade shows, exhibitions, and seminars and expand their market reach.
Tax Exemptions
Registered MSMEs also qualify for certain tax benefits, including deductions on the interest paid for MSME business loans u/s 36(1)(iii) of the Income Tax Act. Additionally, MSMEs that invest in plants and machinery or equipment can claim an investment allowance of 15% u/s 32AC. Moreover, qualifying MSMEs can file taxes under the Presumptive Taxation Scheme (Section 44AD) which frees them from the hassles of maintaining books of accounts and undue compliance stress. MSME start-ups can claim a host of tax benefits under the Start-Up India initiative, including exemption from capital gains on qualifying investments.
Marketing and Promotional Assistance
Obtaining an MSME registration certificate also qualifies your business for marketing and promotional support from the Indian Government. Through schemes like the International Cooperation Scheme, registered MSMEs can access various exhibitions, craft fairs, and exchange programs to build new commercial partnerships. Other than that, the Procurement and Marketing Support Scheme helps enhance the marketability of MSME products and services and promote new market access.
Technology Upgradation Support
Apart from ensuring easy access to affordable credit through MSME business loans, an MSME registration also ensures support for technological upgrades. To promote the use of clean energy in manufacturing, the India Government offers schemes that reimburses project costs for clean technology upgrades to registered MSMEs.
Subsidies on Patent Registration and ISO Certification
With an aim to promote innovation, the Indian Government offers subsidies of up to 50% on patent registration costs to registered MSMEs. Other than that, small businesses with an MSME registration certificate can also obtain complete reimbursement on their ISO certification as well to ensure adherence to the highest quality standards and a definitive competitive edge.
Conclusion
MSMEs are expected to play a pivotal role in fulfilling the dream of making India a $5 Trillion economy within the next 3 years. As a result, the Indian Government is introducing several schemes and initiatives to boost the growth potential of small businesses in the country. If you are a small business owner, you can make the most out of these perks by obtaining an MSME registration certificate through the Udyam portal. As a registered entity, you can proceed to grow your business with MSME business loans, while simultaneously capitalising on varied promotional, tax, and trade benefits.