Introduction
Today, almost every business has a giant corporation involved in it. These corporations are heavily loaded, which allows them to exploit the competition with huge discounts. Thus, it is difficult for other small businesses to flourish in the sector and create a monopoly.
You would also be surprised to know that India has around 633.9 lakh MSMEs. Thus, realising the gravity of the issues, the Government of India has devised various schemes and regulations to uplift and protect MSMEs from such exploitations.
If you are unaware of the benefits of being registered as an MSME, read the article below.
Key Benefits of MSME Registration
The government has ensured numerous ways for MSMEs to succeed in today’s competitive corporate world. Here are some of the benefits of getting an MSME registration:
1. Financial Support
One of the major benefits in any situation, especially business, is monetary. Thus, an MSME registration can benefit you financially in the following ways:
A. Access to Government Schemes and Subsidies
MSMEs play a crucial role in the economic landscape, and their registration offers unparalleled access to various government schemes and subsidies. This not only provides financial support but also fosters growth and sustainability. Here are some of the most important schemes, along with their key features:
- Pradhan Mantri Mudra Yojana (PMMY)
It is designed to facilitate collateral-free loans for micro-enterprises. This ensures a more effortless cash flow for MSMEs.
Features:
- Categorised into three stages: Shishu, Kishor, and Tarun, based on loan amounts.
- Enables MSMEs to meet their working capital and business expansion needs.
- Promotes financial inclusion by extending credit facilities to the underserved.
- Credit Linked Capital Subsidy Scheme (CLCSS)
CLCSS was created to encourage technological upgradation in MSMEs. This initiative helps the MSMEs maintain the competitive standards of the market.
Features:
- Provides a subsidy of 15% on institutional finance up to a maximum limit.
- Aims to enhance productivity and competitiveness by adopting modern technology.
- Focuses on reducing the capital cost for the MSME sector.
- Technology Upgradation Fund Scheme (TUFS)
It is centric on the textile and jute industries. It helps them in upgrading technology.
Features:
- Offers concessional interest rates on loans for technology adoption.
- Facilitates the modernisation of machinery and equipment.
- Strengthens the global competitiveness of the textile sector.
- Interest Subvention Scheme for Incremental Credit to MSMEs
This scheme is designed to encourage banks to provide timely and adequate credit to MSMEs. It allows MSMEs to have effortless access to funds.
Features:
- Subsidy of 2% on fresh or incremental loans for MSMEs.
- Promotes easier access to credit at affordable interest rates.
- Fosters a conducive environment for MSMEs to thrive.
- Make in India Initiative
It promotes domestic manufacturing and attracts foreign investment. This further helps MSMEs have better international exposure.
Features:
- Offers various incentives, including financial support and tax benefits.
- Aims to make India a global manufacturing hub.
- Emphasises innovation, sustainability, and technology adoption.
- Export Promotion Schemes (e.g., MEIS)
It helps in boosting exports and enhancing global competitiveness. This optimises the brand value and sales of MSMEs.
Features:
- Provides financial incentives based on the export performance of MSMEs.
- Encourages diversification of export markets.
- Strengthens the position of MSMEs in the international market.
B. Enhanced Creditworthiness and Easier Loan Access
MSME comes with significant advantages in terms of creditworthiness and access to loans. These benefits relieve financial burdens and facilitate business growth. Here are some key aspects of how MSME registration contributes to improved creditworthiness and easier loan access:
- Reduced Interest Rates
When a business undergoes the registration process, financial institutions perceive it as a more stable and creditworthy entity. This heightened credibility results in the provision of loans at lower interest rates.
Lower interest rates, in turn, play a crucial role in facilitating cost savings for MSMEs. Thus, registered businesses can allocate their resources more efficiently by enjoying more favourable borrowing terms. This enhances their financial sustainability and overall operational efficiency.
- Collateral-Free Loans
MSME-registered businesses are not required to provide assets as security when seeking financial assistance. The elimination of the need for collateral reduces financial risk for the business owner.
Collateral-free loans enhance accessibility to financing, which is particularly beneficial for small and emerging enterprises with limited assets. This financial flexibility empowers businesses to secure the funding they need without the burden of pledging valuable assets.
- Increased Trust From Banks and Financial Institutions
MSME registration is beyond documentation. It is a compelling testament to a business’s legitimacy and commitment to adhering to regulatory standards. This formal recognition enhances the perceived reliability and trustworthiness of registered entities in the eyes of banks and financial institutions.
- Timely and Adequate Credit Facilities
The increased trust manifests a higher likelihood of loan approvals and more favourable terms. For registered MSMEs, this means easier access to credit facilities and the potential for more advantageous borrowing conditions. This trust is further fortified by government initiatives that incentivise banks to provide timely and adequate credit to registered businesses.
- Boost to Entrepreneurial Confidence
Government schemes, such as the Interest Subvention Scheme, aim to ensure that MSMEs have ready access to the necessary financial resources for their day-to-day operations. This support is instrumental in enhancing the financial stability and fostering the growth of MSMEs, contributing to their resilience in a dynamic business environment.
- Alignment With Prudential Lending Practices
MSME registration has a profound impact on the entrepreneurial mindset. Knowing that registration opens doors to financial support acts as a confidence booster for entrepreneurs. Due to this, entrepreneurs are more likely to explore growth opportunities and make strategic investments in their businesses.
2. Market Access and Promotion
For any Micro, Small and Medium Enterprise (MSME), gaining access to markets and effectively promoting their products and services is crucial for success. Fortunately, several government initiatives in India aim to level the playing field and give MSMEs a fighting chance in the competitive marketplace. Some of its key strategies are:
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Reservation of Products for Exclusive Manufacturing by MSMEs
The government has reserved over 350 product categories exclusively for MSME production. This means larger companies cannot manufacture these items, giving MSMEs a guaranteed market share and fostering their growth.
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Participation in Government Tenders and Procurement Processes
MSMEs are given preference in government procurement, with a 25% reservation in annual tenders. This opens up vast opportunities for MSMEs to supply goods and services to various government departments.
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Assistance in Marketing and Promotion through Government Initiatives
The government offers various schemes to support MSME marketing and promotion efforts. These include:
- Market Development Assistance (MDA): It repays expenses incurred in participating in trade fairs and exhibitions, allowing MSMEs to showcase their products to a broader audience.
- Marketing & Branding Support Scheme: It provides financial assistance for branding, logo design, website development, and other marketing activities.
- Digital Upgradation Schemes: It encourages digital adoption by offering grants for creating websites and e-commerce platforms and running online marketing campaigns.
These initiatives help MSMEs reach new customers and enhance their brand image and credibility. MSMEs can overcome initial hurdles and establish themselves in the market by benefiting from these market access and promotion strategies.
3. Simplified Compliance and Regulatory Framework
MSMEs often face many compliance requirements and regulatory hurdles. To ease this burden and promote a more helpful business environment, the Indian government has implemented measures to simplify these processes. Here are two key initiatives that are making a significant difference:
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Single-Window Clearance for Registrations and Approvals
The registration of MSMEs is through a platform known as Udyam Registration Portal. This unified online platform serves as a one-stop shop for MSME registrations, eliminating the need to visit multiple offices. It offers numerous services, such as:
- Obtaining the Udyam Registration Certificate
- MSME Identity Number
- Loan application processing
- Tax registration
- Labor Compliance
- Environmental clearance
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Reduced Paperwork and Bureaucratic Hurdles
MSMEs are increasingly allowed to self-certify compliance with various regulations. This reduces dependence on external inspections and approvals. Moreover, the following measures have been taken to streamline the process:
- Compliance Calendars: Clear timelines and checklists are provided to guide MSMEs through compliance requirements, ensuring timely adherence.
- Online Filing: Most compliance forms and returns can now be filed online, minimising physical visits to government offices.
- Third-Party Facilitation: Government-recognised third-party agencies offer assistance with compliance, easing the burden on MSMEs.
4. Tax Exemption and Benefits
The Indian government recognises the vital role of MSMEs in the economy and offers a range of tax exemptions and benefits to support their growth and success. Some key incentives you must keep in mind are:
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Concessional Tax Rates
Some of the provisions of the Indian Income Tax Act that provide concessions to MSMEs are:
- Section 115BA: Domestic manufacturing companies, including MSMEs, with a turnover of up to ₹400 crore can avail themselves of a reduced tax rate of 25% instead of the standard 30%.
- Section 115BAA: Any domestic company, including MSMEs, can choose a tax rate of 22% by calculating their total income without claiming deductions, depreciation, or set-offs.
- Section 115BAB: New manufacturing domestic companies can opt for a 15% tax rate under certain conditions.
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Tax Exemptions
Some of the sections in the Indian Income Tax Act that exempt MSMEs from certain taxes are:
- Section 80J: MSMEs can avail themselves of an income tax exemption for 7 years from the year of incorporation.
- Section 80-IB: A tax holiday for 5 years is available for MSMEs engaged in producing specific products like mineral oil, natural gas, and fertilisers.
- Section 54GB: MSMEs can use capital gains exemption to invest earnings from the sale of a long-term asset in the equity shares of a qualified start-up.
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Other Benefits
Some other taxation benefits cherished by MSMEs are:
- Presumptive Taxation Scheme: Simplified tax filing based on estimated turnover for eligible businesses.
- Carry Forward and Set-off of Losses: Businesses can carry forward and set off losses for subsequent years to reduce tax liability.
- Digital Incentives: Various schemes offer grants and rebates for adopting digital technologies and online transactions.
Also Read: Importance of MSME Loan for Small Business Owners
MSME Registration in India: Procedure, Documents Required
Conclusion
The government’s variety of subsidies and incentives for MSMEs constitutes a powerful support system that promotes innovation and sustainability. These programmes work as catalysts in resolving the entrepreneurship hurdles MSMEs face, enabling them to succeed in the global economy.
The mutual link between government assistance and entrepreneurial initiative sets the groundwork for a robust MSME sector. This further contributes considerably to economic development and job creation. Thus, it is up to company owners to seize these chances that can skyrocket their success by getting registered as an MSME.
Also Read: How Has GST Helped MSMEs Grow Their Businesses?
Frequently Asked Questions
Q1. Is GST Compulsory for MSME Registration?
For businesses not necessitating GST registration, obtaining a GST number is not obligatory during the MSME registration process. Taxable entities are those with an annual turnover exceeding ₹40 lakhs, making GST registration mandatory for them.
Q2. Who is Eligible for the MSME Loan?
MSME loan eligibility for self-employed professionals (SEPs) like doctors and chartered accountants and self-employed non-professionals (SENPs) such as traders and retailers typically involves criteria like business vintage, age, credit score, turnover, and documentation.
Q3. Does MSME Require a License?
On August 27, the Urban Development Department published a circular. Micro, small, and medium-sized companies (MSMEs) have welcomed the exemption from the requirement to seek trade licences in order to operate in designated industrial estates/areas.
Q4. What is the Limit of MSME?
The definition of service units and MEDIUM manufacturing has been changed to Rs. 100 crores in sales and Rs. 20 crores in investment. The MSME MICRO limit and MSME SMALL limit definitions remained unchanged.
Q5. What is the Cibil Score for MSME Loan?
For MSME loan applications, a minimum CIBIL score of 685 is often required. This criterion is critical since it represents the company’s creditworthiness and capacity to repay the loan. A higher CIBIL Score enhances the likelihood of loan acceptance and may also result in better conditions and interest rates.
Q6. What Happens if the MSME Loan is not Paid?
As per Section 16 of the MSMED Act, the buyer must pay interest to the supplier with monthly rests in cases of non-payment or delayed payment. The interest is compounded at a rate three times the bank rate notified by the RBI.
Q7. Is a Bank Account Mandatory for MSME Registration?
The Udyog Aadhaar Memorandum serves as the registration form through which MSMEs certify their existence. It mandates essential information, including the owner’s Aadhar details and bank account information, facilitating the registration process.
Q8. Can you Have 2 MSME Certificate?
An organisation may not apply for more than one MSME registration. As a result, the Udyam registration certificate covers all of the enterprise’s operations. A Udyam registration certificate is required to get bank loans and advantages granted to MSMEs under various schemes.
Q9. How do I Check my MSME Status?
To verify the validity of your MSME:
- Visit the Udyam Registration website.
- Navigate to the “Verify Udyam Registration” tab.
- Input your Udyam Registration number.
- Enter the verification code.
- Click on the “Verify” button.
This process will confirm the authenticity and validity of your MSME registration.
Q10. What is 80 subsidy for MSME?
The guarantee cover extends to 80% for two specific categories:
- Micro and Small Enterprises operated and/or owned by women.
- All credits/loans in the North East Region (NER) for credit facilities up to Rs. 50 lakh.
This measure aims to provide enhanced financial support and risk mitigation for these particular segments.
