The Government of India revised the classification criteria for Micro, Small, and Medium Enterprises with effect from April 1, 2025. These changes, announced in the Union Budget 2025, have significantly expanded the eligibility thresholds—allowing more businesses to access MSME-specific schemes and benefits.
This note covers the revised limits, the key benefits of Udyam registration, and the compliance requirements that business owners and directors should be aware of.
Revised MSME Classification Limits
The classification is based on two criteria: investment in plant and machinery (or equipment), and annual turnover. Both conditions must be satisfied.
| Category | Investment Limit | Annual Turnover Limit |
|---|---|---|
| Micro Enterprise | Up to ₹2.5 crore | Up to ₹10 crore |
| Small Enterprise | Up to ₹25 crore | Up to ₹100 crore |
| Medium Enterprise | Up to ₹125 crore | Up to ₹500 crore |
Previous thresholds (for reference):
- Micro: ₹1 crore investment, ₹5 crore turnover
- Small: ₹10 crore investment, ₹50 crore turnover
- Medium: ₹50 crore investment, ₹250 crore turnover
The investment limits have been increased by 2.5 times, while turnover limits have been doubled across all categories.
What Udyam Registration Enables
Udyam registration is the official mechanism to register as an MSME under the MSMED Act, 2006. Registration provides access to the following:
Credit and Financial Schemes
- Credit Guarantee Fund Trust (CGTMSE): Collateral-free credit guarantee coverage up to ₹10 crore for eligible micro and small enterprises
- Priority Sector Lending: Registered MSMEs qualify for priority sector lending from banks, which may offer preferential terms
- Interest Subvention Schemes: Various central and state schemes provide interest subsidies on MSME loans
Government Procurement
- GeM Registration: Eligibility for registration on Government e-Marketplace
- EMD and Tender Fee Exemptions: Exemption from Earnest Money Deposit and tender fees for government tenders (subject to specific tender conditions)
Payment Protection
- 45-Day Payment Cycle: Under Section 15 of the MSMED Act, buyers are required to make payment to MSME suppliers within 45 days
- Interest on Delayed Payment: Delayed payment attracts compound interest at three times the RBI bank rate
- Tax Implications: With effect from April 1, 2024, expenses towards MSME suppliers where payment exceeds 45 days cannot be claimed as a deduction under Section 43B(h) of the Income-tax Act until payment is made
Subsidies and Support
- Technology Upgradation: Schemes like CLCSS (Credit Linked Capital Subsidy Scheme) provide capital subsidies for technology upgrades
- Intellectual Property: Subsidies available for patent and trademark registration under MSME schemes
- ISO Certification: Reimbursement schemes for quality certification costs
Udyam Registration Process
Registration is free, paperless, and entirely online:
- Visit udyamregistration.gov.in
- Aadhaar authentication of the proprietor/partner/authorised signatory
- Enter PAN details and business information
- Submit—the Udyam Registration Number (URN) is generated immediately
The system is integrated with GST and Income Tax databases for automatic data verification.
Annual Compliance Requirements
1. Udyam Portal Update
Every registered MSME is required to update its information on the Udyam portal annually. This includes turnover, investment figures, and ownership details. Non-compliance may result in the status being marked inactive.
2. MSME Form I (For Companies)
Companies that have outstanding payments to micro or small enterprise suppliers exceeding 45 days are required to file MSME Form I with the Ministry of Corporate Affairs. This is a half-yearly return:
- Due by October 31: For the period April to September
- Due by April 30: For the period October to March
The form requires disclosure of supplier details, outstanding amounts, and reasons for delay.
3. Tax Audit Reporting
CBDT Notification No. 23/2025 has amended Form 3CD to include reporting requirements related to MSME payment compliance. Tax auditors are now required to report:
- Interest disallowance under Section 23 of the MSMED Act
- Total dues payable to micro and small enterprises under Section 15
4. GST Compliance
- Registration mandatory if turnover exceeds ₹40 lakhs (₹20 lakhs for service providers)
- Quarterly filing available under QRMP scheme for turnover up to ₹5 crore
- Monthly filing required for turnover above ₹5 crore
Budget 2026-27: Key Announcements for MSMEs
The Union Budget 2026-27 introduced additional measures for the MSME sector:
- Enhanced Credit Guarantee: CGTMSE coverage increased from ₹5 crore to ₹10 crore for micro and small enterprises
- Export Support: Term loan guarantee cover up to ₹20 crore for export-focused MSMEs
- TReDS Mandate: Trade Receivables Discounting System made mandatory for central public sector enterprises when procuring from MSMEs
- SME Growth Fund: ₹10,000 crore fund announced to provide equity support to high-potential MSMEs
- Micro Enterprise Credit Card: ₹5 lakh credit facility for micro-enterprises registered on the Udyam portal
Summary
The revised MSME thresholds have expanded eligibility significantly. Businesses with turnover up to ₹500 crore and investment up to ₹125 crore now qualify for Medium Enterprise status.
For directors, founders, and business owners, the key action points are:
- Review current investment and turnover against the revised thresholds
- Complete or update Udyam registration if eligible
- Ensure compliance with MSME Form I requirements if applicable
- Update payment processes to meet the 45-day payment obligation to MSME suppliers
About PMNCO
PMNCO (Prachi Mantri & Company) is a firm of Practicing Company Secretaries based in Indore, providing advisory services in corporate compliance, governance, and regulatory matters.