For a developing country like India, micro, small, and medium enterprises play an important role in promoting the economy's growth and development. The main objective of MSME is the creation and harmonious application of modern processes to increase the output and national strength. They strive to be the backbone of the Indian economy.
MSMEs play a vital role in their contribution towards increasing the output, rising exports, and generating employment opportunities for our nation's citizens. They add to the GDP of our country. This article will focus on the ten benefits that MSMEs get since their inception and during the time of their establishment.
Classification of MSME
- Micro-Enterprise- Investment in plant and machinery less than Rs.1 crore and annual turnover less than Rs.5 Crore.
- Small Enterprise- Investment in plant and machinery less than Rs.10 crore and annual turnover less than Rs.50 crore.
- Medium Enterprise- Investment in plant and machinery less than Rs.50 crore and annual turnover less than Rs.250 crore.
Benefits of MSMEs
The role of MSMEs is not limited to providing ample employment opportunities but varies on different levels. The benefits MSME can reap for our country are as follows:
- Promoting industrialisation.
- Availability of capital at a lower cost.
- Development of backward and rural areas.
- Equitable distribution of national income.
- Reducing regional imbalances.
10 Benefits MSMEs Can Avail
1. Collateral free loans
One of the most popular benefits of MSME registration is the availability of collateral-free loans. The government of India has introduced this scheme to encourage the establishment of new businesses. Both the new and old companies can claim this benefit if registered under MSME.
India's government has introduced the Credit Guarantee Trust Fund Scheme to ensure easy facilitation of this benefit. SIDBI ensures that the MSMEs receive loans within 48 hours, and there are no processing fees or any prepayment costs associated with the same. Thus, the major benefit MSMEs have availed the credit without any collateral.
2. Capital subsidy for MSMEs
Here, in the case of MSMEs, the capital subsidy is in the form of technological upgradation. The world is evolving, and changes are taking place continuously in the technologically advancing sphere. To sustain the existing competition and compete globally, the Government of India and the MSME ministry are providing a capital subsidy amounting to 15%. This subsidy is given when the existing technology becomes obsolete, and upgrading them is essential to survive in the market.
3. Safeguarding delayed payments
We all know that businesses run on credit systems. But many times, it happens that cash flow cannot be adequately maintained because of the delayed payments, and the cycle goes on. A special benefit has been offered to the MSMEs in case of the delayed payments. The MSMEs have the right to claim interest on the payments received lately.
If the goods are supplied, or services are provided, and the payment is not received on or before the agreed date or within 15 days when nothing is specified, interest can be claimed. If the payment is not received within 45 days or a pre-decided date, the debtor has to pay compounded interest and monthly interest, which is 3 times the normal interest rate.
4. Electricity bills
The Government of India has decided to provide relief to the registered MSMEs in case of electricity bills. To avail of this benefit of 20% subsidy for the first 36 months, the respective MSME has to make an application to the electricity department. The MSME registration certificate should be provided along with any other necessary documents to claim concessions in the electricity bills.
5. Reimbursement of ISO Certification costs
All the costs and expenses incurred for ISO certification purposes can be reimbursed in the case of MSMEs. Any MSME whose main business requires maintaining good quality for the goods provided needs to fulfil ISO requirements and take a certificate for the same. But as expenditure is incurred, many enterprises do apply for the same. So, the ministry has decided to reimburse expenses related to it for ensuring performance enhancement. The reimbursement is to be done in the case of ISO 9000, ISO 14001, and HACCP certificates.
6. Promoting innovation
Innovation refers to doing new things. Under the incubation scheme launched in 2019, numerous benefits are available to promote innovative ideas and businesses. The various benefits are in the form of financial assistance. Up to 15 lakhs are given for the development of an idea and nurturing it. Up to 1 crore rupees are provided to procure and install the plant and machinery required for setting up any innovative business. And up to 1 crore grants are allowed to promote the startups and their establishments under the seed capital funding.
7. Subsidies related to patent registration
For any MSME having a certificate of registration can avail of a subsidy of 50% in case of registering patents. The grant has been provided to encourage new inventions that may be useful to society and be unique. The fees to be paid for MSME registration has been lowered. The renewal fees also have been reduced. The design application filing fees is also comparatively lower compared to the previous charges.
8. Low-interest rates on loans
MSME on providing registration certificates can benefit 1% on the overdraft loan facility. The benefit may differ from one bank to another. MSME loans are available at competitive rates.
9. Tax exemptions
Start-ups under the MSME scheme are allowed for 100% tax exemption. They are exempted from paying taxes for 3 years out of a block of 7 years if the turnover does not exceed Rs.25 crore. The tax exemption is allowed as a deduction, and the scheme is available for any business established under MSME and having up to ten years of existence. The Minimum Alternate Tax (MAT) can be paid for 15 years compared to 10 years.
10. Industrial promotion subsidy and tender preferences
Various subsidies have been provided by the government for the enterprises registered for industrial promotion. For a few infrastructural projects also, tenders are open for application from MSMEs only.
Challenges Faced by MSMEs
We have seen that many benefits and exemptions are available to the MSMEs. Still, there are a few challenges faced by them. To run a successful enterprise, one needs to overcome the various hurdles, which are as follows:
- Difficulty in acquiring finance on time.
- Low supply of skilled labour at an economical cost.
- Ineffective marketing techniques.
- Production constraints.
- Limited knowledge about MSMEs rules and regulations.
Thus, we can say that MSMEs help drive the economy and contribute to its expansion. The government took all the necessary steps and encouraged businesses to register under the MSME Act by offering various benefits. Youth should grab this opportunity and start their venture. One should be aware of all the registration requirements under this Act and the benefits allowed.
1) MSME – Industries that form a Foundation for a Robust Economy
2) How is the Government helping Small Businesses & Startups fight the financial crisis?
3) All About Small & Medium-Sized Enterprises (SMEs)
4) How to get your business listed on the Stock Exchange?
Q. What is the fee for MSME registration?
Ans. There are no fees applicable for MSME registration.
Q. What are the patent registration fees for MSME?
Q. Which portal is created for MSMEs and MSEs to file their applications regarding delayed payments?
Ans. MSME Samadhaan portal is created for the MSMEs and MSEs by the office of MSME to file the applications online regarding delayed payments.
Q. How is the penal interest calculated in case of delayed payments?
Ans. Penal interest is calculated on a monthly compounding basis.
Q. What are the documents required for the registration of MSMEs?
Ans. The following list of documents is mandatory at the time of filing for registration of MSMEs-
- Partnership deed, registration certificate, memorandum, and articles of association.
- Cancelled cheque
- Copy of sale or purchase bill
- Aadhar Card
- PAN Card
- Business address proof
- Bills of plant and machinery