The Reserve Bank of India (“RBI”) in a notification dated 2nd July, 2020 has notified a criteria regarding credit flow to Micro, Small and Medium enterprises.
Earlier, The Government of India in a Gazette Notification S.O. 2119 (E) dated 26th June, 2020 had notified certain criteria for classifying the enterprises as micro, small and medium enterprises and had further specified the form and procedure for filing the memorandum (“Udyam Registration”).
Key Highlights
• Classification of enterprises:
a. Micro Enterprise: Where the investment in Plant and Machinery or Equipment does not exceed 1 crore rupees and turnover does not exceed 5 crore rupees;
b. Small Enterprise: Where the investment in Plant and Machinery or Equipment does not exceed 10 crore rupees and turnover does not exceed 50 crore rupees;
c. Medium Enterprise: Where the investment in Plant and Machinery or Equipment does not exceed 50 crore rupees and turnover does not exceed 250 crore rupees
• Composite criteria of investment and turnover for classification
a. If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
b. All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) will be collectively treated as one enterprise and the turnover and investment figures for all of such entities will be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.
• Calculation of investment in plant and machinery or equipment
a. The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (“ITR”) of the previous years filed under the Income Tax Act, 1961.
b. In case of a new enterprise, where no prior ITR is available, the investment will be based on 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.
c. The expression “plant and machinery or equipment” of the enterprise, will have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and will include all tangible assets (other than land and building, furniture and fittings).
d. The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, will be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR.
• Calculation of turnover
a. Exports of goods or services or both, will be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.
b. Information regarding turnover and exports turnover for an enterprise will be linked to the Income Tax Act or the Central Goods and Services Act (“CGST Act”) and the GSTIN.
c. The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.
In case there is a change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration. In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place.
Source : Reserve Bank of India
