The Indian government has introduced the Udyam Registration process to provide Micro, Small, and Medium Enterprises (MSMEs) a formal identity, streamlining access to a range of benefits, subsidies, and schemes. This registration is a significant step toward formalizing businesses, promoting entrepreneurship, and ensuring that MSMEs contribute meaningfully to economic growth. But, not every business qualifies for Udyam Registration. Understanding the eligibility criteria is crucial for business owners who want to leverage the advantages of being a registered MSME. This article explores the comprehensive eligibility requirements to determine if your business qualifies for Udyam Registration.
What is Udyam Registration?
Udyam Registration, launched on July 1, 2020, replaced the earlier MSME registration process, including the Udyog Aadhaar Memorandum (UAM). It is a simplified and streamlined process designed to provide a unique identity to businesses operating in the MSME sector. Once registered, enterprises gain access to various benefits, including priority sector lending, lower interest rates, and protection against delayed payments.
Why Register Under Udyam?
Registering under Udyam opens the door to multiple benefits, including access to government schemes, subsidies, and incentives. It helps businesses secure loans at concessional rates, provides a shield against delayed payments, and enhances the credibility of the enterprise. However, to reap these benefits, an enterprise must first establish its eligibility according to the criteria set by the Ministry of MSME.
Eligibility Criteria for Udyam Registration
The Ministry of Micro, Small, and Medium Enterprises has laid down specific eligibility criteria to identify which businesses can be categorized as MSMEs. The classification is based on two main factors:
- Investment in Plant, Machinery, or Equipment
- Annual Turnover
These parameters vary depending on the size of the enterprise (micro, small, or medium) and the sector it operates in (manufacturing or services).
1. Classification Based on Investment and Turnover
The criteria for defining micro, small, and medium enterprises are primarily based on the amount invested in plant and machinery or equipment and the annual turnover of the business. The details are as follows:
Micro Enterprise:
Investment: Up to ₹1 crore
Annual Turnover: Up to ₹5 crore
Small Enterprise:
Investment: Up to ₹10 crore
Annual Turnover: Up to ₹50 crore
Medium Enterprise:
Investment: Up to ₹50 crore
Annual Turnover: Up to ₹250 crore
It’s important to note that both criteria need to be met to classify under a particular category. For instance, if a business has an investment of ₹2 crore (small enterprise range) but an annual turnover of ₹55 crore (medium enterprise range), it would be classified as a medium enterprise.
2. Definition of Investment in Plant, Machinery, or Equipment
The investment in plant and machinery is calculated as the original cost (excluding GST and other taxes) incurred on purchasing the plant, machinery, or equipment. In the case of service-based enterprises, the investment refers to the total amount spent on equipment and infrastructure. Notably, this does not include the cost of land, building, or other intangible assets.
For new enterprises, the investment will be calculated based on the self-declaration of the promoter until the Income Tax Return (ITR) for the first financial year is filed.
3. Definition of Annual Turnover
The annual turnover is calculated based on the revenue generated by the enterprise from its operations. For enterprises already in existence, the information on turnover is obtained from the Income Tax Return (ITR) and GST return filed in the previous financial year. For newly established enterprises, the turnover will also be based on a self-declaration until a formal return is filed.
Additional Eligibility Conditions
Besides investment and turnover criteria, there are a few other conditions that businesses must meet to be eligible for Udyam Registration:
Ownership Type and Legal Structure
Udyam Registration is available to various types of businesses, including:
- Proprietorship firms
- Hindu Undivided Family (HUF)
- Partnership firms
- Limited Liability Partnership (LLP)
- Private Limited Company
- Public Limited Company
- Co-operative Societies and Trusts
The type of business ownership does not affect eligibility, provided the business falls within the prescribed investment and turnover limits.
GST and PAN Requirement
For registration, having a Permanent Account Number (PAN) and GST Number (GSTIN) is mandatory for all businesses. The details will be verified from the respective government databases, making it essential to ensure that all information is up to date and accurate.
No Multiple Registrations Allowed
An enterprise can obtain only one Udyam Registration, regardless of the number of branches or units it operates. However, a single Udyam Registration can include details of multiple branches or units, provided they are engaged in the same line of business activity.
Step-by-Step Guide to MSME Registration
The registration process for MSMEs in India has been simplified and can be done online
through the Udyam Registration Portal. Here is a step-by-step guide to the process:
Step 1: Visit the Udyam Registration Portal: Go to the official Udyam Registration website.
Step 2: Enter Business Details: The applicant needs to provide essential details about the business, including the name of the enterprise, type of organization, PAN, location, bank details, and major activities (manufacturing or service).
Step 3: Enter Details of Investment and Turnover: Enter the details of investment in plant and machinery or equipment and annual turnover.
Step 4: Upload Required Documents: Upload the necessary documents, such as the PAN card, Aadhaar card, and other relevant certificates.
Step 5: Submit the Application: After filling in all the required details and uploading the documents, submit the application.
Step 6: Pay Registration Fee: Pay the minimal application fee to complete your registration successfully.
Step 7: Receive Registration Certificate: Upon successful submission, a registration certificate is issued online. This certificate carries a unique Udyam Registration Number (URN).
Who is Not Eligible for Udyam Registration?
Certain businesses and enterprises do not qualify for Udyam Registration due to the nature of their operations or their structure. These include:
Large Enterprises
Businesses that exceed the maximum investment and turnover limits set for medium enterprises are not eligible for Udyam Registration.
Trading Businesses
Udyam Registration is specifically intended for manufacturing and service enterprises. Pure trading businesses—those involved only in buying and selling goods without any value addition—do not qualify for registration.
Foreign Companies
Only businesses registered and operating in India can apply for Udyam Registration. Foreign entities, branches of international companies, and any other foreign business setups are not eligible.
Also Read, How Udyam Registration Online Boosts MSME Growth in India
Conclusion
Understanding the eligibility criteria for Udyam Registration is crucial for MSMEs looking to formalize their operations and leverage government benefits. The criteria, primarily based on investment and turnover, ensure that only businesses that truly qualify as MSMEs can register. This classification helps create a level playing field and provides focused support to micro, small, and medium enterprises, promoting growth, innovation, and sustainability. For business owners, ensuring compliance with these criteria is the first step toward a more structured and supportive business environment.
