Overview of Udyam Registration

Any individual intending to obtain MSME registration must apply for Udyam Registration which is the new process for the registration of MSME launched by the Ministry of MSME on 01.07 2020 as an initiative of easing the registration of MSMEs.

Prior to the introduction of Udyam Registration, two filings, namely Entrepreneur Memorandum-I (EM-I) and Entrepreneur Memorandum-II (EM-II), had to be filed for the obtainment of MSME or SSI Registration. With Udyam Registration, the obtainment of the same has been drastically simplified.

The Government of India (GOI) initiated Udyam registration as a substitution for the earlier method of Udyog Aadhaar Registration for easier registration of the same by the MSME. The Udyam Registration process is of similar nature to the UAM Registration process, and it is mandatory for the enterprises to migrate to the Udyam registration irrespective of being registered under Udyog Aadhaar Registration.

Udyam Registration: Meaning

An Udyam Registration, also referred to as an MSME Registration, comprises a government sign-off provided together with a Recognition Certificate as well as a Unique Number. This is an instrument useful for the applicant if he intends to certify the status of small or medium businesses or enterprises, and it being legal and operational.

Benefits of Udyam Registration

The Government provides Udyam registration free of cost, and it can be can obtain easily. After the obtainment of such registration, the benefits which a business can avail due to the same are discussed below-

• Availment of tax concessions in state laws
• The claim of stamp duty
• Exemption of 1% interest rate on overdraft
• Reservation of products for MSME and SSI exclusive manufacturing.
• Availment of Exemption at the time of applying for government tenders
• Cheaper bank loans due to the low-interest rates
• Easy obtainment of license approvals and registrations irrespective of the field of business due to the higher priority given to the enterprises having Udyam Registration
• Benefits of tariff subsidies, tax and custom subsidies
• Interest rate subsidy on bank loans
• Protection against delayed payments against materials and goods supplied by the enterprise
• Availment of subsidy on patent registration
• Eligibility for Industrial promotion subsidy
• Bar Code Registration subsidy
• Concession on electricity bills

Priority Sector Lending:

The Priority Sector Lending (PSL) guidelines are issued by the Reserve Bank of India. RBI has issued guidelines on Priority Sector Lending vide its circular no. RBI/FIDD/2020-21/72 Master Directions FIDD.CO.Plan.BC.5/04.09.01/2020 dated 04.09.2020

Accordingly, the categories under the priority sector are

1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others.

Therefore, MSME Sector falls under Priority Sector Lending. As per RBI, the definition of MSMEs will be as per GoI, GazetteNotification S.O. 2119 (E) dated 26.06.2020 r/w circular RBI/2020-21 /10 FIDD.MSME & NFS.BC.No.3/06.02.31/2020 read with FIDD.MSME & NFS. BC. No.4 /06.02.31/2020-21 dated 02.07 2020, and 21.08, 2020, respectively, on 'Credit flow to MSME Sector and updated from time to time. Further, such MSME should be involved in the manufacturing or production of goods, in any manner, with respect to any industry specified in the 1st Schedule to the Industries (Development and Regulation) Act,1951 or involved in providing or rendering any service or services.

All bank loans to MSMEs conforming to the RBI Guidelines qualify for classification under Priority Sector Lending. 

Eligibility/ Classification of Enterprises

An enterprise would  be classified as a micro, small or medium enterprise based upon  the below-mentioned criteria, namely: --

• A micro-enterprise, wherein the investment in plant and machinery or equipment isn't exceeding 1 crore rupees, and turnover isn't exceeding Rs5
• A small enterprise, wherein the investment in plant and machinery or equipment isn't exceeding 10 crore rupees, and turnover isn't exceeding Rs  50 crore; and
• A medium enterprise, wherein the investment in plant and machinery or equipment isn't exceeding exceed 50 crore rupees, and turnover isn't exceeding 250 crores.

Composite Criteria of Investment and Turnover for Classification

The aspects in respect of  the same are discussed below -

• A composite criterion of investment and turnover shall apply for the classification of an enterprise as micro, small or medium.
• If an enterprise crosses the ceiling limits provided for its present category in either of the 3 criteria of investment or turnover, its exitance in that category shall be ceased and be placed in the next higher category, but none of the enterprises must be placed in the lower category unless it goes below the ceiling limits provided for its present category in both the criteria of investment and as turnover.
• All units with GSTIN, i.e. Goods and Services Tax Identification Number, 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 a micro, small or medium enterprise.

 Criteria for Calculation of Investment in Plant and Machinery or Equipment

The criteria for calculation of investment in plant and machinery or equipment are elaborated below -

• The computation of investment in plant and machinery or equipment shall be linked to the ITR, i.e. Income Tax Return of the PYfiled under the ITA 1961.
• In case of a new enterprise, with the non-availability of any prior ITR, the investment will be on the basis of self-declaration of the promoter of the enterprise, and such relaxation shall be ending post the 31st March of the financial year (FY) in which the first ITR is filed.
• The expression "plant and machinery or equipment" of the enterprise would be having the same meaning as given to the plant and machinery in the Income Tax Rules, 1962, formulated under the Income Tax Act, 1961 and shall be including all tangible assets (except for land and building, furniture and fittings).
• The purchase (invoice) value of a plant and machinery or equipment, irrespective of whether being purchased first hand or second hand, shall be considered excluding GST, i.e. Goods and Services Tax on the basis of self-disclosure, if the enterprise is a new one, not having any ITR
• The cost of certain items specified in the Explanation I to Section 7(1) of the Act should be excluded from the computation of the amt of investment in plant and machinery.

Calculation of Turnover

Turnover of the enterprise can be calculated in the following manner -

• There shall be the exclusion of Exports of services or goods both while computing the turnover of any enterprise, irrespective of micro, small or medium, for the classification.
• Information regarding turnover and export turnover for an enterprise would be linked to the  ITA ie Income Tax Act  1961 or the Central Goods and Services Act (CGST Act) and the GSTIN.
• The turnover-related figures of such enterprises which do not have PAN will be considered based on self-declaration for a time period up to 31.03. 2021, and after that, PAN and GSTIN shall be mandatory.

Documents / Information Required for Udyam Registration

The most important  Document required for such registration is the Aadhaar card; however, the applicant must be aware of the relevant Aadhaar depending upon the type of enterprise along with the information which must be furnished  during the registration process, which is elaborated below-

• The Aadhaar no. should be of the proprietor if it's a proprietorship firm, of the managing partner if its a partnership firm and of a Karta if it's a Hindu Undivided Family (HUF).
• If it's a Company or a Limited Liability Partnership (LLP) or a Cooperative Society or a Society or Trust, the organisation or its authorised signatory shall provide its GSTIN and PAN along with its Aadhaar number.
• If an enterprise is duly registered as an Udyam with PAN, any deficiency of information for PY, when it didn't have PAN, shall be filled up on a self-declaration basis.
• Bank information, including the participating bank branch's IFSC code, where the applicant's account is located 
• PAN card
• Commencement date
• Type of organisation
• Official address
• Mobile number
• Details about service/manufacturing
• Location of manufacturing plant/service
• Total number of employed individuals

In the absence of the Aadhaar card of the applicant or authorised signatory of a business, he/she must first apply for Aadhar at an Aadhar enrolment centre. The Udyog Aadhar process can be initiated subsequent to the obtainment of Aadhar.

The below-mentioned steps must be followed by an applicant in case of them not enrolled for Aadhaar -

• If the applicant is eligible for Aadhaar as per Section 3 of the Aadhaar Act, they must apply for Aadhaar enrolment.
• An Aadhaar Enrolment ID slip or a copy of the Aadhaar enrolment request must be provided
• One of the following Documents - A voter ID card, driving license, passport, bank passbook with photograph, PAN card, etc.

In addition to the Aadhar, the applicant would have to submit the information required in the application form:

Process of Udyam Registration

• The form for registration must be as provided in the Udyam Registration portal.
• There isn't a fee for filing Udyam Registration.
• An Aadhaar number shall be required for Udyam Registration.
• Any person intending to establish a micro, small or medium enterprise may file Udyam Registration in the Udyam Registration portal on the basis of the self-declaration.
• Upon registration, an enterprise (referred to as “Udyam” in the Udyam Registration portal) will be assigned a permanent identity number referred to as “‘Udyam Registration Number”.
• The completion of the registration process shall lead to the issuance of a certificate, namely, the "Udyam Registration Certificate."
• If the enterprise is duly registered as an Udyam with the PAN, any deficiency of information for PY, when the enterprise wasn’t having PAN, shall be filled up based upon self-declaration
• None of the enterprises shall file more than one Udyam Registration:
• Provided that any no. of activities, including manufacturing or service or both, can be specified or added in one Udyam Registration.
• In case of an attempt of misrepresentation or suppression of the self-declared facts and figures appearing in the Udyam Registration or updation process by anyone shall make them liable for penalty as specified under section 27 of the Act.

Registration of Existing Enterprises

The key aspects regarding the registration of existing enterprises are discussed below -

• All existing enterprises which have been registered under EM–Part-II or UAM were required to register again on the Udyam Registration portal on or subsequent to 01.07. 2020.
• All enterprises registered till 30. 06. 2020 shall be re-classified as per the new notification.
• The existing enterprises registered before 30.06. 2020 shall continue to be valid for a time period up to 31.03.2021 only.
• An enterprise registered with any other organisation under the Ministry of MSME must register itself under Udyam Registration.

Updation of Information and Transition Period of Classification

The aspects with regard to the Updating of Information and Transition Period of Classification are discussed below

• An enterprise having Udyam Registration Number must update its information online in the Udyam Registration portal, along with the details of the ITR and the GST Return for the previous FY and any other additional information that may be required on the basis of self-declaration
• If the enterprise fails to update the required information within the prescribed period in the online Udyam Registration portal, it will make the enterprise liable for the suspension of its status.
• The enterprise's classification shall be updated on the basis of the information furnished or gathered from the Government's sources, including ITR or GST returns.
• If there is graduation, i.e. from a lower to a higher category or reverse graduation, i.e. sliding down to a lower category) of an enterprise, a communication shall be sent to the enterprise with regard to the change in the status.
• If there is an upward change regarding the investment in plant and machinery, equipment, turnover or both and consequent reclassification, an enterprise shall be required to maintain its prevailing status till the expiration of 1 year from the close of the year of registration.
• If there is a reverse graduation of an enterprise, either consequential to re-classification or due to actual changes in investment in plant & machinery, equipment, turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will be continuing in its present category till the closing of the FY and shall be provided with the benefit of the changed status only wef 1st April of the FY following the year in which the change occurred.