MSME Udyam Registration

Revised MSME Classification Criteria (2020 Onwards)

Composite Criteria: Investment + Turnover

The Ministry of MSME, vide Notification S.O. 2119(E) dated 26 June 2020 (effective 1 July 2020), revised the classification criteria. Both conditions — investment AND turnover — must be satisfied simultaneously. The enterprise is classified in the category corresponding to the higher of the two thresholds breached:

Category	Investment in Plant & Machinery / Equipment	Annual Turnover
Micro	Up to Rs 1 crore	Up to Rs 5 crore
Small	Up to Rs 10 crore	Up to Rs 50 crore
Medium	Up to Rs 50 crore	Up to Rs 250 crore

How Investment and Turnover Are Calculated

1. Investment in plant and machinery: Linked to the Income Tax Return (ITR) filed for the previous year. The investment is calculated as the written down value (WDV) as per the Income Tax Act. Land and building, furniture, and fittings are excluded. For new enterprises without an ITR, the investment is based on self-declaration.
2. Annual turnover: Linked to the GST return (GSTR) data. Turnover related to exports is excluded from the computation. For enterprises not required to file GST returns, self-declaration is accepted.
3. Automatic re-classification: The Udyam portal automatically reclassifies the enterprise upward or downward based on ITR and GSTR data linked through PAN and GSTIN. An enterprise classified upward retains its earlier classification benefits for one year from the date of upward reclassification.

Key Changes from the Old UAM System

• Unified classification for manufacturing and services — no separate categories
• Composite criteria (investment + turnover) instead of investment alone
• Export turnover excluded — this benefits export-oriented MSMEs
• Aadhaar-based online registration — no documents, no fees, no renewal
• Permanent registration number with automatic updation from ITR/GSTR data
• Self-declaration for new enterprises; data-linked validation for existing ones

Udyam Registration Process — Step-by-Step

Step 1: Gather Prerequisites

• Aadhaar number of the proprietor, managing partner, or authorised signatory (for companies/LLPs, the authorised signatory’s Aadhaar and the organisation’s GSTIN/PAN are required)
• PAN of the enterprise (mandatory for enterprises registered under Companies Act or LLP Act)
• GSTIN (if registered under GST)
• Bank account details of the enterprise
• NIC code (National Industrial Classification) for the business activity

Step 2: Access the Udyam Portal

Navigate to udyamregistration.gov.in. Select “For New Entrepreneurs who are not Registered yet as MSME” for first-time registration, or “For those already having registration as EM-II or UAM” for migration.

Step 3: Aadhaar Verification and OTP

Enter the Aadhaar number and the name as per Aadhaar. An OTP is sent to the Aadhaar-linked mobile number. For companies and LLPs, the authorised signatory’s Aadhaar is used, and the entity’s PAN/GSTIN is entered separately.

Step 4: Fill Enterprise Details

• Type of organisation: Proprietorship, Partnership, Pvt Ltd, LLP, etc.
• PAN of the enterprise
• Business address, state, district, pin code
• Date of incorporation/commencement
• Bank account number and IFSC code
• Major activity: Manufacturing or Services
• NIC-2008 code: Two-digit code specifying the industry
• Number of employees (including contract and casual)
• Investment in plant and machinery/equipment (self-declared)
• Turnover details

Step 5: Submit and Receive URN

Upon submission, the portal auto-validates PAN and GSTIN data with the Income Tax and GST systems. The Udyam Registration Certificate with a permanent URN is generated instantly and sent to the registered email. No physical certificate is issued — the e-certificate is the valid document.

Benefits of Udyam Registration

1. Priority Sector Lending

Under the RBI Master Direction on Priority Sector Lending (updated periodically), all scheduled commercial banks must allocate a specified percentage of their Adjusted Net Bank Credit (ANBC) to priority sectors. MSMEs are a designated priority sector sub-category. This means:

• Micro enterprises: Banks have a sub-target of 7.5% of ANBC for micro enterprises
• Collateral-free loans: CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) provides collateral-free credit up to Rs 5 crore for micro and small enterprises
• Lower interest rates: Priority sector classification typically results in interest rates 1-2% lower than commercial rates
• Faster processing: Banks have dedicated MSME branches and specialised officers for processing MSME loan applications

2. Credit Linked Capital Subsidy Scheme (CLCSS)

The CLCSS provides a 15% upfront capital subsidy on institutional finance availed by MSEs (micro and small enterprises) for technology upgradation. Maximum eligible loan under the scheme is Rs 1 crore, meaning the maximum subsidy is Rs 15 lakh. The enterprise must upgrade technology with approved machinery to qualify.

3. Interest Subvention on Incremental Credit

The Interest Subvention Scheme provides 2% interest subvention on fresh or incremental loans to MSMEs. For enterprises in the GST-registered category, the scheme applies to incremental credit sanctioned by scheduled commercial banks.

4. Delayed Payment Protection — MSMED Act Section 15-24

Sections 15 to 24 of the MSMED Act, 2006 provide statutory protection against delayed payments:

• Section 15: Buyer must make payment to the micro/small enterprise within the date agreed upon in writing, or within 45 days of acceptance of goods/services — whichever is earlier
• Section 16: Buyer is liable to pay compound interest (3 times the bank rate notified by RBI) on the outstanding amount from the appointed day
• Section 18: Disputes regarding delayed payments are referred to the Micro and Small Enterprises Facilitation Council (MSEFC) constituted by the State Government
• Section 43B(h) of Income Tax Act (inserted by Finance Act, 2023): Payments due to micro and small enterprises must be made within the time prescribed under MSMED Act Section 15 for the buyer to claim the expenditure as a deduction. If the payment is delayed beyond 45 days (or the agreed period), the buyer cannot claim the deduction until actual payment.

5. Government Procurement Preference

Under the Public Procurement Policy for MSMEs (PPP-MSMEs Order, 2012, as amended in 2018):

• Central Government ministries/departments and CPSEs must procure a minimum of 25% of annual purchases from MSMEs
• Of this 25%, a sub-target of 4% is reserved for MSMEs owned by SC/ST entrepreneurs, and 3% for women-owned MSMEs
• MSMEs get purchase preference of up to 20% in tenders where their quoted price is within the band of L1+15%
• Participation on Government e-Marketplace (GeM) requires Udyam Registration for availing MSME benefits

6. Other Benefits

• Patent and trademark fee concession: 50% fee rebate on patent filing and trademark registration for micro and small enterprises
• ISO certification reimbursement: Reimbursement of expenses for obtaining ISO certification
• Barcode registration subsidy: 75% subsidy for bar code registration from GS1 India
• NSIC raw material assistance: NSIC provides raw material assistance on credit to registered MSMEs
• Exemption from earnest money deposit (EMD) in government tenders
• Technology and Quality Upgradation Support (TEQUP) under the National Manufacturing Competitiveness Programme

Section 43B(h) — Practical Impact on MSME Payments

Section 43B(h) of the Income Tax Act, inserted by Finance Act, 2023 (effective from AY 2024-25), has fundamentally changed the payment dynamics between buyers and MSMEs. Under this section:

• If a buyer makes payment to a micro or small enterprise beyond the time limit prescribed under Section 15 of the MSMED Act (45 days or the agreed period), the expenditure is allowed as a deduction ONLY in the year of actual payment — not on accrual basis
• This provision applies only to payments due to micro and small enterprises (not medium enterprises)
• The supplier must be registered on the Udyam portal for Section 43B(h) to apply
• Buyers must now verify the MSME status of their vendors at the time of entering into contracts

Practical consequence: Large corporates are increasingly demanding Udyam Registration certificates from their MSME vendors to track payment timelines and avoid disallowance under Section 43B(h). This has made Udyam Registration functionally mandatory even for MSMEs that may not otherwise need government scheme benefits.

Udyam Registration for Different Entity Types

Proprietorship Firms

Sole proprietors register directly using their personal Aadhaar. No PAN is mandatory for proprietorship firms with turnover below the GST threshold. However, we recommend having PAN for accurate classification and bank loan eligibility.

Partnership Firms and LLPs

The managing partner’s Aadhaar is used for verification. The firm’s PAN and GSTIN are linked. Each partner need not register separately — one registration per enterprise.

Private Limited Companies

The authorised signatory (typically a director) provides the Aadhaar for verification. The company’s PAN and GSTIN are mandatory. The Udyam portal fetches data from MCA and GST systems for validation.

Multiple Business Activities

If a single enterprise is engaged in multiple activities (say, both manufacturing and services), one Udyam Registration covers all activities. Multiple NIC codes can be added in a single registration. However, if the same proprietor has multiple enterprises as separate legal entities, each entity needs its own Udyam Registration.

Common Compliance Requirements Post-Registration

Automatic Updation

The Udyam portal automatically updates the enterprise classification based on ITR and GSTR filings. No manual renewal is required. The registration is permanent and does not expire.

Voluntary Updation

Enterprises should voluntarily update the Udyam portal if there are changes in:

• Business activity or NIC code
• Address, email, or contact details
• Number of employees
• Additional GSTIN (for enterprises with multiple GST registrations)
• Bank account details

Filing with MSEFC for Delayed Payments

To file a delayed payment claim before the Micro and Small Enterprises Facilitation Council:

1. File a reference through the MSME Samadhaan portal
2. Upload invoices, purchase orders, and proof of delivery
3. The MSEFC must dispose of the case within 90 days from the date of reference
4. The council’s award is equivalent to a decree of a civil court — enforceable through execution proceedings

Frequently Asked Questions

1. Is Udyam Registration mandatory for all MSMEs?

Udyam Registration is not legally mandatory for operating a business. However, it is functionally mandatory for: (a) availing priority sector lending and CGTMSE guarantees; (b) participating in government tenders with MSME benefits on GeM; (c) filing delayed payment claims under MSMED Act before the MSEFC; and (d) ensuring your buyers can claim deductions under Section 43B(h) of the Income Tax Act. Without registration, an enterprise loses access to all statutory MSME benefits.

2. Can a Private Limited Company register for Udyam?

Yes. Any entity — proprietorship, partnership, LLP, Private Limited Company, or One Person Company — can register on the Udyam portal provided it meets the investment and turnover thresholds for micro, small, or medium classification. The authorised director’s Aadhaar and the company’s PAN and GSTIN are used for registration.

3. What happens if my turnover exceeds the MSME limit?

The Udyam portal automatically reclassifies the enterprise based on ITR and GSTR data. If turnover exceeds Rs 250 crore or investment exceeds Rs 50 crore, the enterprise ceases to be an MSME. However, an enterprise classified upward retains the benefits of its earlier classification for a period of one year from the date of upward reclassification.

4. Is Udyam Registration the same as Udyog Aadhaar?

No. Udyog Aadhaar Memorandum (UAM) was the earlier registration system that has been replaced by Udyam Registration effective 1 July 2020. All existing UAMs were required to migrate to the Udyam portal. UAMs that have not been migrated are treated as invalid. The migration is free and can be done on the same Udyam portal.

5. Does Udyam Registration need to be renewed annually?

No. Udyam Registration is permanent and does not require renewal. The classification is automatically updated based on ITR and GSTR data filed by the enterprise. However, enterprises should voluntarily update their details on the portal if there are changes in business activity, address, or number of employees.

6. Can an enterprise have multiple Udyam Registrations?

No. One enterprise can have only one Udyam Registration. If a single proprietor or promoter operates multiple legal entities, each entity needs a separate registration. But multiple business activities within a single legal entity are covered under one registration with multiple NIC codes.

7. How does Section 43B(h) affect buyers of MSME goods/services?

Section 43B(h) of the Income Tax Act (effective AY 2024-25) disallows the buyer from claiming a deduction for payments made to micro or small enterprises beyond the time limit prescribed under Section 15 of the MSMED Act (45 days or the agreed period, whichever is earlier). The disallowance is reversed only in the year of actual payment. This effectively penalises buyers who delay payments to registered MSMEs.

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