MSME classification: Understanding meaning and category benefits

The micro, small, and medium enterprises (MSME) sector plays a significant role in the economic growth of India. It contributes to job creation, innovation, and the overall development of the country. In 2020, the government revised the MSME classification and introduced new criteria to determine their eligibility. In this article, we will discuss the new MSME classification, and the benefits of being classified as an MSME.

Budget 2025-26 for MSMEs Classification (February 2025)

The latest revision of the MSME classification is important for both new businesses and existing ones:

Higher limits = More flexibility: Businesses no longer have to worry about exceeding the old thresholds too quickly. They can now invest in machinery, technology, and staff to become more competitive.

Comprehensive assessment (Investment + Turnover): By considering turnover, the government ensures that the classification reflects a business’s actual market presence, not just its capital investment.

Reduced compliance burden: With clearer and more consistent definitions for both manufacturing and services, the paperwork and compliance process is now simpler.

Inclusive economic growth: By broadening the scope of MSMEs, more businesses can benefit from government support, such as credit guarantees, subsidies, and easier access to loans.

Key Features of Budget 2025-26 for MSMEs (February 2025)

Scheme for first-time entrepreneurs:

A new scheme will be launched for 5 lakh first-time entrepreneurs, including women, Scheduled Castes (SC), and Scheduled Tribes (ST). The scheme will provide term loans up to Rs. 2 crore over the next 5 years.

Manufacturing mission focus areas: The mission aims to focus on:

Focus area	Description
Ease and cost of doing business	Simplifying business operations and reducing costs
Future-ready workforce for in-demand jobs	Creating a skilled workforce for future job markets
A vibrant and dynamic MSME sector	Strengthening and growing the MSME sector
Availability of technology	Ensuring access to modern technology
Quality products	Promoting high-quality manufacturing
Clean tech manufacturing for climate-friendly development	Encouraging eco-friendly manufacturing

 

Revision in classification criteria for MSMEs:

Rs. in crore	Investment	Turnover
Current	Revised	Current
Micro enterprises	1	2.5
Small enterprises	10	25
Medium enterprises	--	--

Revision in MSMEs Classification Criteria:

In the Union Budget 2025, the Government of India introduced a major revision to the MSME classification rules. Specifically, investment limits have been raised by 2.5 times, and turnover limits have been doubled. This change is designed to help MSMEs grow without losing access to important benefits and incentives, contributing to wider economic growth and more job opportunities.

Here is a quick look at the revised criteria according to the Union Budget 2025:

Enterprise Category	Current Investment Limit	Revised Investment Limit	Current Turnover Limit	Revised Turnover Limit
Micro Enterprise	Rs. 1 crore	Rs. 2.5 crore	Rs. 5 crore	Rs. 10 crore
Small Enterprise	Rs. 10 crore	Rs. 25 crore	Rs. 50 crore	Rs. 100 crore
Medium Enterprise	Rs. 50 crore	Rs. 125 crore	Rs. 250 crore	Rs. 500 crore

MSME classification

The new MSME classification, introduced in June 2020, is based on 2 parameters – investment in plant and machinery or equipment (for manufacturing and service enterprises) and turnover (for service enterprises). The revised classification is as follows:

Size of the enterprise	Investment and annual turnover
Micro enterprises	Investment less than Rs. 1 crore and turnover less than Rs. 5 crore
Small enterprises	Investment less than Rs. 10 crore and turnover up to Rs. 50 crore
Medium enterprises	Investment less than Rs. 20 crore and turnover up to Rs. 100 crore

MSME classification table

The updated MSME definition, effective from 01.07.2020, relies on combined turnover and investment limits for plant, machinery, or equipment. These criteria apply uniformly to both manufacturing and service enterprises. Here’s how MSMEs are classified into micro, small, and medium categories.

-	Net turnover is > 5 crore	Net turnover > 5 crore but < 50 crore	Net turnover > 50 crore but <250 crore	Net turnover surpasses ` 250 core
The net investment does not surpass 1 crore.	Micro Enterprise	Small Enterprise	Medium Enterprise	Out of MSME fold (large enterprise)
The net investment is >1 crore but <10 crore	Small Enterprise	Small Enterprise	Medium Enterprise	Out of MSME fold (large enterprise)
The net investment is >10 crore but <50 crore	Medium Enterprise	Medium Enterprise	Medium Enterprise	Out of MSME fold (large enterprise)
The net investment surpasses 50 crore	Out of MSME fold (large enterprise)	Out of MSME fold (large enterprise)	Out of MSME fold (large enterprise)	Out of MSME fold (large enterprise)

 

New features of the new MSME classification

Here are some key points about the latest MSME classification system:

Turnover-based criteria: Businesses with an annual turnover of up to £250 million are classified as MSMEs. This change allows for more flexibility and inclusion of additional businesses, benefiting the economy.

Simplified business operations: The new MSME classification aims to simplify the registration process and reduce compliance burdens, making it easier to do business. It also removes the need for multiple registrations.

Unique ID number: A unique identification number will grant access to various government schemes and benefits, serving as a single reference for regulatory and compliance needs.

Support and incentives: The government has introduced measures to aid MSMEs, including reduced credit costs, subsidies for technology upgrades, and tax incentives.

Benefits of being classified as an MSME

Being classified as an MSME comes with several benefits, including:

Access to credit and capital

Your business will have access to various government schemes and subsidies that can help them secure financing. You can be eligible for collateral-free loans under the credit guarantee fund scheme, which provides financial assistance to businesses without collateral.

Tax benefits

Your business can avail of several tax benefits, including reduced tax rates under the Income Tax Act, GST exemptions, and exemptions under the startup India scheme.

Marketing support

Your business can benefit from government schemes that provide marketing support, such as the trade-related entrepreneurship assistance and development (TREAD) scheme and the micro and small enterprises cluster development programme.

Procurement benefits

You can get procurement preference under the government e-Marketplace (GeM) portal, which gives you access to government procurement contracts. This enables you to generate more revenue and grow your business.

Role of new MSME classification in India

Here's how the new MSME classification system is poised to foster entrepreneurship and self-employment in India:

Boosting local manufacturing: The revamped MSME classification aligns with the vision of Atmanirbhar Bharat (Self-reliant India) by encouraging local manufacturing and reducing reliance on imports. The government incentivizes domestic production, aiming to diminish import dependency.

Unlocking MSME potential: The updated classification facilitates MSMEs' access to credit, technology upgrades, and various governmental aids, unlocking their potential for growth and development.

Access to skilled workforce: To bridge the skill gap in the MSME sector, the government has initiated schemes like the Skill India Mission, the Apprentices Act, and the Pradhan Mantri Kaushal Vikas Yojana, offering skill training and employment opportunities to youth and workers.

Government assistance for MSMEs: Various government schemes such as the Credit Guarantee Scheme, the Prime Minister's Employment Generation Programme, and technology upgradation initiatives have been launched to enhance MSMEs' access to finance, technology, and skilled labour, fostering their growth and sustainability.

Impact of MSME classification on business loans

Banks and other financial institutions consider the MSME classification while determining the eligibility of a business loan. Being classified as an MSME increases the chances of getting a business loan as the government provides various schemes and subsidies to support MSMEs.

Bajaj Finance offers business loans for MSMEs, providing financial solutions to help businesses grow and flourish. With flexible repayment options, competitive interest rates, and quick disbursal, our business loans are designed to cater to the diverse needs of MSMEs.

Here are some of the features and benefits of our business loan:

1. Flexible repayment options: We offer flexible repayment options ranging from 12 months to 96 months, making it easier for you to repay your loans without feeling the burden of a hefty EMI.
2. Competitive interest rates: With competitive interest rates, our business loan is an affordable option for MSMEs. You can save on interest expenses and use the funds to grow your business.
3. Quick disbursal: We offer quick disbursal of funds, ensuring that businesses have access to the funds they need to grow their operations. Once approved, the loan amount is disbursed within 48 hours*.
4. Minimal documentation: Compared to traditional loans, our business loans have minimal documentation requirements, making the application process quick and hassle-free.
5. No collateral required: Our business loans are collateral-free, making them accessible to businesses without assets to pledge as collateral.

Bajaj Finserv business loans provide a quick and hassle-free financing solution for MSMEs. With flexible repayment options, competitive interest rates, and minimal documentation requirements, our business loans are an attractive option for businesses looking to grow and expand their operations. Choose Bajaj Finserv as your financial partner and take the next step towards achieving your business goals.