Practical Insights into Section 43B(h)- With particular focus on identifying MSE suppliers who fall within Section
Reckoner 1 - Turnover-limit linked compliances/ exemptions for a
MSME Reckoner 2 - Turnover-limit linked compliances/ exemptions for MSME which is a limited liability partnership I-43
MSME Reckoner 3 - Turnover-limit linked compliances/ exemptions for MSME which is a traditional/general
MSME Reckoner 4 - Turnover-limit linked compliances/ exemptions for MSME which is individual/HUF I-63
MSME Reckoner 5 - Turnover-limit linked compliances/ exemptions for MSME which is a Public Company I-75
DIVISION ONE
APPENDIX 7 : h
APPENDIX 8 : s
APPENDIX 9 :
APPENDIX 10 :
1.1 What does ‘MSME’ stand for?
MSME stands for Micro, Small, and Medium Enterprises.
1.2 What does ‘MSE’ stand for?
MSE stands for Micro and Small Enterprises.
1.3 What does ‘SME’ stand for?
SME stands for Small and Medium Enterprises. In some countries SME is more frequently in use.
1.4 Is there any statutory definition of ‘Micro enterprises’, ‘Small enterprises’ and ‘Medium enterprises’?
The terms “Micro Enterprises”, “Small Enterprises” and “Medium Enterprises” are defined in the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The MSMED Act came into force on 02.10.2006. As per its long title, the avowed objects of the MSMED Act is to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and matters connected there with or incidental thereto.
Section 2(h) of MSMED Act defines “micro enterprise” to mean an enterprise classified as such under sub-section (1) of section 7.
Section 2(m) of MSMED Act defines “small enterprise” to mean an enterprise classified as such under sub-section (1) of section 7.
Section 2(g) of MSMED Act defines “medium enterprise” to mean an enterprise classified as such under sub-section (1) of section 7.
The old definition and classification of Micro, Small and Medium Enterprises (MSMEs), applicable from 02.10.2006 to 30.06.2020, was based on ceilings on investment in plant and machinery for enterprises in the manufacturing sector and on ceilings on investment in equipment in services sector. The investment ceilings were fixed way back in 2006 and were not adjusted for inflation. These outdated investment ceilings not adjusted for inflation discouraged MSMEs from undertaking new investments in plant and machinery or equipment for fear of losing the MSME status due to investment limits being exceeded. Government of India has notified new definitions and classification criteria of MSMEs vide Notification No. S.O. 2119(E), dated 26.06.2020 (hereafter referred to as the “New MSME Notification” or simply as ‘NMN’ for brevity sake).
The new definition of MSME, applicable with effect from 01.07.2020, is based on the composite criteria of turnover limits and limits of investment in plant and machinery or equipment. The same limits apply to both manufacturing enterprises and service enterprises.
The following Table shows the classification of MSMEs into micro, small and medium categories (applicable upto 31.03.2025) based on various combinations of situations as regards net investment in plant and machinery or investment and net turnover:
investment in plant and machinery or equipment exceeds ` 10 cr but not ` 50 cr
Net turnover does not exceed ` 5 cr Net turnover does not exceed ` 50 cr
turnover exceeds ` 50 cr but not ` 250 cr
turnover exceeds ` 250 cr
large enterprise Net investment in plant and machinery or equipment exceeds ` 50 cr
Notes:
1. In the above table, cell No. 1 represents a situation where net investment in plant and machinery or equipment of an enterprise does not exceed ` 1 crore and net turnover does not exceed ` 5 crores and so on.
2. Investment in plant and machinery or equipment means “the net investment in plant and machinery or equipment” (net of depreciation as per IT Act and IT Rules) and not original cost or book value (See Chapter 2)
3. Net Turnover means Total turnover less export turnover. (See Chapter 3)
4. 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 shall be placed in the next higher category. An enterprise shall continue to avail of all non-tax benefits of the category (micro or small or medium) it was in before the re-classification, for the period of 3 years from the date of such upward change.
5. 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. The enterprise will continue in its present category till the closure of the financial years and it will be given the benefit of the chuffed status only with effect from 1st April of the following financial year.
6. All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN)
shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.
Revised Classification of MSMEs applicable with effect from 01.04.2025
In the Union Budget Speech, 2025, the Finance Minister announced that the investment and turnover limits for classification of all MSMEs will be enhanced to 2.5 and 2 times respectively. [See Para 28 of the Union Budget Speech, 2025]
The revision of limits announced in Union Budget Speech is as follows:
Micro Enterprises12.5510
Small Enterprises102550100
Medium Enterprises50125250500
The above revised investment and turnover limits have been made applicable with effect from 01.04.2025 [Notification No. S.O. 1364(E), dated 21.03.2025]
Analysis of classification of MSMEs based on composite criteria Para 3 of the Notification clarifies as under:
A composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium.
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.
All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.
Para 8(5) and 8(6) of the Notification provide as under:
In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise shall continue to avail of all nontax benefits of the category (micro or small or medium) it was in before the re-classification, for a period of three years from the date of such upward change. [Para 8(5)]
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. [Para 8(6)]
With effect from 01.04.2025, the revised classification of MSMEs based on composite criteria shall be as follows: Net turnover does not exceed ` 10 cr Net turnover does not exceed ` 100 cr Net turnover exceeds ` 100 cr does not exceed ` 500 cr Net turnover exceeds ` 500 cr
Net investment in plant and machinery or equipment does not exceed ` 2.5 cr MicroSmallMediumOut of MSME fold-large enterprise (Note 1)
Net investment in plant and machinery or equipment does not exceed ` 25 cr
MediumOut of MSME fold-large enterprise
Net investment in plant and machinery or equipment exceeds ` 25 cr does not exceed ` 125 cr MediumMediumMediumOut of MSME fold-large enterprise (Note 1)
Net investment in plant and machinery or equipment exceeds ` 125 cr Out of MSME fold-large enterprise (Note 1) Out of MSME fold-large enterprise (Note 1) Out of MSME fold-large enterprise (Note 1) Out of MSME fold-large enterprise (Note 1)
Note 1:
Vide Press Note No. 1 (2025 Series), dated 1-4-2025, the Department for Promotion of Industry and Internal Trade (DPIIT) has clarified the revision in eligibility criteria for Industrial Entreprenuers Memorandum (IEM) acknowledgement as follows:
As per the Gazette Notification S.O. 1364(E) dated 21st March 2025, issued by Ministry of Micro, Small, and Medium Enterprises (MSME) the eligibility criteria for classification of MSMEs has been revised. This revision marks a significant step towards fostering industrial growth, encouraging higher investments, and strengthening India’s position as a global manufacturing hub. In line with this notification, Department for Promotion of Industry and Internal Trade (DPIIT) has updated the eligibility criteria for issuance of Industrial Entrepreneur Memorandum (IEM) acknowledgement.
Revised Eligibility Criteria for IEM Acknowledgement - As per the updated guidelines, enterprises meeting the following revised criteria shall be eligible for IEM acknowledgement:
Investment in plant & machinery/equipment exceeding ` 125 crore, or/and
Annual turnover exceeding ` 500 crore
The revised criteria shall be applicable w.e.f. 1st April, 2025. IEM acknowledgement is for:
Large-scale industries operating in sectors not requiring compulsory industrial licensing under the Industries (Development & Regulation) Act, 1951.
Companies having investment in plant and machinery, or/and annual turnover beyond the limits set for MSMEs.
The eligible enterprises can apply for IEM acknowledgement through the G2B Portal as per the revised eligibility criteria.
1.5 How will the revised investment limits and turnover limits apply? Will they apply for the assessment year 2025-26 (FY 2024-25) if, based on the ITR for FY 2023-24 (AY 2024-25) filed during FY 2024-25, the investment limits and/or turnover limits are exceeded?
The frozen data for FY 2023-24 will serve as the basis for classifying MSMEs during FY 2025-26, which is scheduled to be carried out in April or May 2025. The revised enhanced limits take effect from April 1, 2025,
i.e., from the financial year 2025-26. The revised enhanced limits will not affect the MSME classification for the assessment year 2025-26 (FY 2024-25), which was carried out in April 2024.
Illustration 1: Suppose the Supplier’s Udyam Certificate shows the following details under the head “Enterprise Type” in Tabular form in April 2024:
S.No.Classification YearEnterprise TypeDate of Classification
1.2024-25Medium 27/04/2024
2.2023-24Medium 09/05/2023
3.2022-23Medium26/06/2022
4.2021-22Medium16/05/2021
Suppose the investment in the Plant and Machinery of an enterprise is ` 14 crores and the turnover is ` 60 crores (based on frozen data of ITR/GSTRs for FY 2022-23), and the same was classified as a medium enterprise for FY 2024-25 in April 2024. Suppose the ITR filed for FY 2023-24 (AY 2024-25) shows that the investment is ` 20 crores and the turnover is ` 75 crores. The enterprise is eligible to be ‘reclassified by reverse-graduation’ as a small enterprise in FY 2025-26, as it does not exceed the revised investment limit of ` 25 crores and the revised turnover limit of ` 100 crores, given the revised enhanced limits for small enterprises effective 01.04.2025. However, in view of Para 8(6) of the Notification, the enterprise will continue in its present category of medium enterprise till the end of 31.03.2026, and it will be treated as a small enterprise only with effect from 01.04.2026 (FY 2026-27) provided revised enhanced limits for small enterprise are met as per the ITR filed for FY 2025-26 (AY 2026-27).
Illustration 2: Suppose the Supplier’s Udyam Certificate shows the following details under the head “Enterprise Type” in Tabular form in April 2024:
1.2024-25Medium 27/04/2024
2.2023-24Medium 09/05/2023
3.2022-23Medium26/06/2022
4.2021-22Small16/05/2021
Suppose the ITR filed for FY 2023-24 (AY 2024-25) shows that the investment is ` 20 crores and the turnover is ` 75 crores.
In the above case, in accordance with Paragraph 8(5) of the Notification, the enterprise is eligible to be treated as a small enterprise for supplies made up to 15.05.2024. It will be treated as a medium enterprise for supplies made from 16.05.2024 to 31.03.2025, and such supplies will be outside the ambit of Section 43B(h). In accordance with frozen ITR data for AY 2024-25, the enterprise is eligible to be reclassified as a “small enterprise” in FY 2025-26 as it does not exceed the revised investment limit of ` 25 crores and the revised turnover limit of ` 100 crores, given the revised enhanced limits for small enterprises effective 01.04.2025. However, in view of Para 8(6) of the Notification, the enterprise will continue in its present category of medium enterprise till 31.03.2026, and it will be treated as a small enterprise only with effect from 01.04.2026 (FY 2026-27) provided revised enhanced limits for small enterprise are met as per the ITR filed for FY 2025-26 (AY 2026-27).
Illustration 3: Suppose the Supplier’s Udyam Certificate shows the following details under the head “Enterprise Type” in Tabular form in April 2024:
S.No.Classification YearEnterprise TypeDate of Classification
1.2024-25Medium 27/04/2024
2.2023-24Medium 09/05/2023
3.2022-23Small26/06/2022
4.2021-22Small16/05/2021
Suppose the ITR filed for FY 2023-24 (AY 2024-25) shows that the investment is ` 20 crores and the turnover is ` 75 crores.
In the above case, in accordance with Paragraph 8(5) of the Notification, the enterprise is eligible to be treated as a small enterprise for supplies made up to 25.05.2025. Therefore, it will be treated as a “small enterprise” for financial year 2024-25 (assessment year 2025-26) for Section 43B(h) purposes.
In accordance with frozen ITR data for AY 2024-25, the enterprise is eligible to be reclassified as a “small enterprise” in FY 2025-26 as it does not exceed the revised investment limit of ` 25 crores and the revised turnover limit of ` 100 crores, given the revised enhanced limits for small enterprises effective 01.04.2025. However, in view of Para 8(6) of the Notification, the enterprise will continue in its present category of “medium enterprise” till the end of 31.03.2026, and it will be treated as a small enterprise only with effect from 01.04.2026 (FY 2026-27) provided revised enhanced limits for small enterprise are met as per the ITR filed for FY 2025-26 (AY 2026-27). Therefore, for FY 2025-26 (AY
2026-27), it will be treated as small enterprise for supplies made by it from 01.04.2025 to 25.05.2025. It will be treated as medium enterprise in respect of supplies made by it from 26.05.2025 to 31.03.2026 and it will be treated as a small enterprise only with effect from 01.04.2026 (FY 2026-27) provided revised enhanced limits for small enterprise are met as per the ITR filed for FY 2025-26 (AY 2026-27).
1.6 Is satisfying the above composite criteria of investment and turnover sufficient to qualify as MSME and avail the benefits under the MSMED Act? Or is any registration needed to be recognised as MSME under the said Act?
For Section 43B(h) purposes, the terms “micro-enterprise” and “small enterprise” are not defined in terms of an enterprise whose investment limit and turnover limit do not exceed the limits specified for a medium enterprise under the MSMED Act. The definition is not along the lines of the definition of “small enterprise” given in Rule 2(1)(v) of the Trade Mark Rules, 2017. So, one cannot argue that only the limits of investment and turnover prescribed for “micro-enterprise” and “small enterprise” in Para 1 of Notification No. 2119 are relevant, and the remaining Paras of the Notification are not relevant.
One cannot conclude on the relevance of Udyam Registration for the definitions of “micro-enterprise” and “small enterprise” by reading Para 1 only of Notification 2119. The Meemansa Rule of miØeksilagkjks, cited by Supreme Court approvingly in U.P. Bhoodan Yagna Samiti v. Braj Kishore (1988) 4 SCC 274, is as follows:
miØeksilagkjks vH;kls·iwoZrk Qye~A
vFkZoknksiiÙkh p fyaxa rkRi;Zfu.kZ;s
The Supreme Court held that when you have to draw conclusions from any writing, you have to read it from beginning to end. Without doing it, it is difficult to understand the purpose. If there is any innovation (apoorvata/navyata) or something new it should be taken note of. Then, one must notice the result of such innovation. Then, find what is intended to be conveyed and in what context.
For interpreting the Notification by applying the “miØeksilagkjks” Rule adopted By SC, one has to take note of the various Paras of Notification No 2119:
Para 2 : Becoming a micro, small or medium enterprise
Online Filing of UR on self-declaration basis [Para 2(1)]
Para 6: Registration process
PAN & Aadhaar Compulsory
GSTIN Compulsory unless exempted from GST Registration under CGST Act
Para 4: Calculation of investment in PME
Investment=WDV as per ITR less cost of pollution control, R&D and industrial safety devices [OM,dated 6-8-2020 & Item 20 of Udyam Registration Form,]
Calculation linked to ITRs filed of previous years
Para 5: Calculation of turnover
Export of goods or services or both to be excluded
Information on turnover & exports shall be linked to ITR or GSTIN
Para 8: Update of information and transition period in classification
Based on the information furnished or gathered from the Government’s sources, including ITR or GSTR, classification will be updated.
In the event of graduation or reverse graduation, a communication will be sent to the enterprise regarding the change in status.
When medium enterprise is to be treated as Micro or Small for Section 43B(h): In case of an upward change in terms of investment or turnover or both, and consequent re-classification, an enterprise shall continue to avail of all non-tax benefits of the category (micro or small or medium) it was in before the re-classification, for a period of 3 years from the date of such upward change. [Para 8(5) of the Notification]
Accordingly, a small enterprise growing to Medium can avail the provision for delayed payment as per Chapter-V of the MSMED Act, 2006. [Q.43 MSME Samadhaan portal]
The following Features of Udyam Portal are also relevant
PAN & GST linked details on investment & turnover taken automatically from Govt. data bases.
The online system is fully integrated with Income Tax and GSTIN systems.
By applying the Upakramop rule approved by the Supreme Court, from a conspectus of various Paras in the Notification and features of the
Portal, it is clear that Udyam registration as a micro-enterprise or a small enterprise is relevant to treat an enterprise as a micro-enterprise or small enterprise. It has been clarified in MSME Samadhan Portal that Udyam Registration is mandatory for availing all the schemes/benefits [FAQ 4 on MSME Samadhaan Portal]
1.7 Is there a uniform definition of SMEs or small businesses for the purposes of all laws benefitting SMEs?
Unfortunately, No.
The new definition of MSMEs (micro, small and medium enterprises) as per the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as ‘the MSMED Act’) is based on composite criteria of investment limits and turnover limits. The new definition is applicable with effect from 01.07.2020. This definition stipulates a turnover limit of ` 250 crores for MSMEs eligible to register under MSMED Act and avail benefits under that Act. The old definition under the MSMED Act applicable upto 30.6.2020 did not stipulate any turnover limit. It only stipulated limits on investment in plant and machinery for manufacturing enterprises and limits on investment in equipment for service enterprises.
The small business universe or SME universe is vast and diverse ranging from street vendors to startups. They exist in formal sector as well as informal sector. Those existing in informal sectors do have some of the trappings of formal sector like street vendors or carts accepting payments through cashless means like PhonePe or Paytm. The universe of small businesses is not exhausted by the enterprises registered under the MSMED Act or eligible to register under that Act as per the definitions under that Act. Only manufacturing enterprises and service enterprises are eligible to be registered under that Act and avail benefits under that Act. There are activities which are neither manufacture nor services [See para 5.14].
Start-ups are a special segment of the small and medium businesses sector defined under DPIIT notification as partnership firms, LLPs and private limited companies which are (i) DPIIT Recognised (ii) having turnover not exceeding ` 100 cr and (iii) not completed 10 years from date of incorporation. Irrespective of whether they register under the MSMED Act or not, DPIIT-recognised startups are entitled to benefits under the Startup India scheme. DPIIT-recognised startups which are LLPs or private limited companies are also entitled to various tax benefits under the Income-tax Act, 1961 [See Division 9].
