MSME Registration: Why it is Crucial for Small, Medium Enterprises in India

|Updated on: August 24, 2021

The MSME sector plays a significant role in the growth of the Indian economy. Not only does it aim at increasing the overall GDP of the country but also provides an ample number of employment opportunities to those who have a knack to run a business but have limited resources. The MSME entities are defined based on their size of investment made in plant and machinery if they are operating in the manufacturing sector and investment in equipment for service sector companies. In India, MSMEs are also termed as Small-Scale Industries (SSIs) and because of their nature of business and significance in the development of the country, the Central and State Government leave no stone unturned to help them flourish.

Since the MSMEs play such a major in boosting the Indian economy, the Government has a myriad of benefits in store for them once they’re registered under the MSMED Act. They’re often termed as the MSME Registration Benefits. Although it is not necessarily mandatory to register the small-scale industries but to make the most of these benefits, this legal action is essential. Here are some of the key benefits which entrepreneurs can avail with MSME registration:

Continuous Financial Support from The Government and Banks

From subsidised loans with low-interest rates to quick processing of the extra funds, registering a business under the MSMED Act can help the entrepreneurs enjoy a myriad of benefits. A certain kind of preferential treatment is also provided in case of any delays.

Benefits from Central and State Government

Certain schemes launched by Central Government especially for MSMEs registered under MSMED Act help the entrepreneurs grow their business in a better way. MSMEs which register themselves also enjoy several tax exemption benefits which are levied by the State Government. Apart from this, MSMEs get numerous tax benefits like exemption from excise duty as well as exemption from certain direct taxes in the initial years of its business.

Production of Certain Goods/Services Strictly by MSMEs Only

Due to their nature of investment which is primarily on a small-scale, the government has reserved the production of certain products by MSMEs only. With limited budget and resources, it will be hard for the SSIs to survive in a competitive market space, hence the government stores are bound to purchase certain products like wooden furniture, jewellery, pickles, etc from these industries.

No More Delayed Payment Woes

The government aids the MSMEs in getting payments against the buyers on time, While the transaction of goods or services happen between the MSMEs and the buyers, the due date for the payment is usually mentioned on the agreement. And if the MSME is registered under the MSMED Act, the buyer is bound to make the payment on or before the mentioned date. However, if no due date is mentioned, the buyer must initiate the payment 15 days after the acceptance of the goods or the service. No payment should exceed the 45-days period and in case the buyer fails to comply with these regulations, they are penalised with a certain extra amount of money.

Numerous exemptions and financial assistance

MSMEs also gets financial assistance from the government to participate in foreign expos, which further helps in export and import interest of one’s business. Businesses registered under the MSMED Act can also avail 1% exemption on the interest rate on overdraft facilities. However, the OD facility could vary from one financial institution to the other.

Facilities to upgrade technology as per industry standards

Since the financial capital of the MSMEs is low as compared to the other industries, it is hard to stay updated with the latest technology. In order to stay on top of the game, it is crucial for the SSIs to use state-of-the-art technology. Thus, the government ensures that it provides facilities and financial aid to the MSMEs under the Capital Aid for Technological Upgradation Scheme to upgrade the equipment they use.

Concession on Electricity Bills

Businesses registered under the MSMED Act can avail a huge reduction on their electricity bills. Eventually, reducing the fixed cost, entrepreneurs can save a huge amount and invest in areas that will enhance business development.

Types of MSME Registration:

Provisional MSME Registration is granted to MSMEs during the pre-investment period and its benefits include:

  1. Availing of accommodation, land and other approvals.
  2. Getting necessary NOCs (No Objection Certificates) and other clearances from their respective regulatory bodies.

Permanent MSME Registration is granted to an existing unit that is functional and its benefits include:

  1. Exemptions from State and Central government taxes.
  2. Price and purchase preference for goods produced.

Packed with numerous benefits, MSME registration allows the entrepreneurs to enter the market space with large scale industries yet availing small scale business assistance. The documents required to register under the MSMED Act is extremely easy. These are as follows:

  1. Proof of establishment that may be a Sale Deed or a Rent Agreement.
  2. Bank Statement or a cancelled cheque.
  3. Aadhar card of the authorized person.
  4. PAN card of the authorized person.

In case an entrepreneur does not have a valid Aadhaar ID, they can apply for the same and in the meantime, till their Aadhaar card arrives, on behalf of the enterprise, the MSME-DI or DIC shall fill the Udyog Aadhaar Registration (UAR). As an alternative, these documents would be required to submit by the entrepreneur:

  1. Aadhaar enrolment ID slip; if they have enrolled.
  2. A copy of the request made for Aadhar enrolment.
  3. Any of the following; bank photo passbook, voter ID, passport, driving license, PAN card, employee photo ID card issued by the Government.
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