MSME: understanding meaning, classification, category benefits and payment methods

25 / 06 / 2024

India's MSME sector gets government support through credit, tax, and operational benefits for this key economic driver.

4 min.


The term MSME is almost synonymous with small businesses. While small businesses have always existed, MSME was coined only in 2006. Micro, Small and Medium Enterprises (MSMEs) are defined and categorised under the MSME Development Act, and the Ministry of MSME governs the segment. With this formalised approach towards small businesses in the country, the classification of small businesses within the MSME scope is now clearly defined.

Classifications within MSME

The classification of micro, small and medium enterprises is based on the investments and annual turnover of the business. The classification criteria within MSME are as follows:

  • Micro business: A business with an investment of not more than ₹1 crore in plant and machinery or equipment and an annual turnover of not more than ₹5 crores.
  • Small business: A business with an investment of not more than ₹10 crores in plant and machinery or equipment and an annual turnover of not more than ₹50 crores.
  • Medium business: A business with an investment of not more than ₹50 crores in plant and machinery or equipment and an annual turnover of not more than ₹250 crores.

Benefits Available to MSMEs

With a ministry dedicated to the welfare of MSMEs, it is apparent that the government regards these businesses very highly. MSMEs are crucial for the Indian economy, contributing nearly 30% of the country’s GDP. One-third of the country’s manufacturing output and half of the exports come from MSMEs. The government encourages MSMEs with measures such as:

  • Credit assistance: The credit guarantee trust fund scheme has made access to finance easier for small businesses. Credit-linked capital subsidies for technology upgradation, equipment finance, corporate finance, term loans, working capital loans, microfinance, and bill discounting are some of the many ways in which MSMEs can get assistance in arranging finance.

  • MSMEs are also offered a lower rate of interest compared to other businesses, with the sector recognised for priority credit. By Q3 2023, smaller businesses accounted for 42% of the loans disbursed to MSMEs. By this period, MSME credit origination had witnessed 11% growth.

  • Exposure: Having an MSME registration also means that you have increased exposure to the market. The government organises and funds various domestic and foreign events for these businesses. Participation in international trade shows, business meetings, seminars, and workshops is facilitated. The MSME business gets international business opportunities as well as the latest business know-how from such exposure. 

  • Tax benefits: MSME businesses can claim a deduction of up to 6% of capital employed from their profit. deduction of 25 to 100% of profit is available to specified businesses for a period of five to seven years under Section 80IB. Eligible domestic manufacturing companies, including MSMEs, can pay a reduced income tax of 25% instead of 30% under 115BA. minimum alternate tax and dividend distribution tax are also waived. There are various other tax benefits that an MSM can utilise under the Income Tax Act.

  • Operational benefits: MSMEs also enjoy various concessions, discounts, and subsidies. To promote innovation and novel concepts in businesses, registered MSME businesses can avail of a 50% discount on their patent registration costs. Purchasers of MSMEs are liable to pay interest on any delays in payment to MSME sellers. MSMEs can also claim reimbursement for the ISO certification fees throu o the appropriate authorities.

Payment Advantage for MSMEs 

To protect MSMEs from payment delays, the Income Tax Act requires that payments to MSMEs must be made within 45 days if there is a written agreement between the parties. In the absence of an agreement, the payment must be made within 15 days. If the buyers fail to make the payment within the stipulated time, the overdue amount becomes taxable and non-admissible as an expense.

The government has implemented these measures to facilitate faster payment recovery for MSMEs. Businesses can improve their payment processes further by introducing customer-friendly systems. Modern customers prefer multiple payment methods that allow payments to be made quickly and seamlessly. As a merchant, you should offer your customers diverse payment options like debit cards, credit cards, internet banking, UPI, wallets, QR codes, and payment links. This accommodates customers with different payment preferences, from POS payments to online modes. 

Ideal Payment Solution for MSMEs

Worldline, a leading payment service provider, understands the need for tailored payment solutions for Micro, Small, and Medium Enterprises. We offer seamless omnichannel payment solutions that include the Next-Gen Payment Gateway, POS terminals, VABOX, LinkPay, etc. 

Explore the world of Worldline and discover how innovative payment solutions can help your business thrive in today’s competitive landscape.

Worldline India Editorial Team

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