Since a new process of classification and registration of Micro, Small and Medium Enterprises started from July 1. 2020, 25.98 lakh MSMEs have registered on it as of March 30, 2021. Now, as the older process becomes invalid on March 31, some 76.31 lakh entities remain uncertain about their benefits and status as MSMEs.
On June 26, 2020 the Ministry of Micro, Small and Medium Enterprises issued a notification changing the definition of MSMEs and introducing a new process for MSME registration (Udyam Registration). The notification stated that the existing MSME registrations (Udyog Aadhaar Number (UAN) or Enterprise Memorandum (EM) shall be invalid after March 31.
With just another day left for the Udyog Aadhar registration process to be phased out, official data shows that of the 1.02 crore MSMEs that have registered on the Udyog Aadhar portal, only 25.98 lakh MSMEs have migrated and registered on Udyam.
This leaves the remaining 76.31 MSMEs unsure of the benefits and tax breaks they get as MSMEs. Moreover, they say there has been a lack of clarity from the central government on the matter.
“Udyog Aadhar is a portal wherein the enterprises which are registered self-certify their existence of being MSME to the government. However, if Udyog becomes invalid from April 1, those MSMEs which do not register themselves of Udyam will lose the benefits that come with it,” said Chandrakant Salunkhe, Founder & President, SME Chamber of India.
Salunkhe clarified that the MSMEs which have not registered under Udyam will not lose the status of being an MSME if they fit under the new definition as given by the government, but will not be able to avail the benefits.
MSME bodies seek extension
“We have made requests to the government to increase the validity of Udyog Aadhar by six months. While the government claims that it has so far received over 25 lakh registrations, it is significantly low considering that there are an estimated 7 crore MSMEs in India. One could only say that the awareness of the registration and the benefits that come with it is still very low,” Salunkhe said.
"There is no doubt that the MSMEs who do not register will lose the benefits that Udyam provides because they will no longer be eligible as Udyog will become invalid, however I think that government may announce an extension, said Ranjeet Mehta, Deputy Secretary General, PHD Chamber of Commerce & Industry said.
He further noted that the government recognises only those enterprises as MSMEs who register, self-declare their existence to avail the benefits.
A government official speaking on the condition of anonymity said, "The notification has clearly said that Udyog Aadhar is expiring after March 31 so there is no option but to register on Udyam if the MSMEs want to avail the benefits."
A representative of Industry body Federation of Indian Micro and Small & Medium Enterprises told Moneycontrol that the issue of extension for Udyog Aadhar will be among the issues that will be raised with the Ministry in a meeting which is due in early April.
Benefits to MSMEs
MSMEs which self certify their existence by registering on the government portal are eligible for a wide variety of benefits ranging from interest rate subsidy on bank loans, to exemption under direct tax laws, concession in electricity bills among others.
Ashok Saigal, Co-Chairman at CII’s (Confederation of Indian Industry) National MSME Council and MD of Frontier Technologies, a small-scale manufacturing company said, "Yes those MSMEs which do not register by March end are bound to lose out on benefits like collateral free loans, bank credit among others. The government has eased the registration process significantly so the onus now lies with the entities to register."
The gazette notification in June further stated the all enterprises are required to register online and obtain Udyam Registration Certificate. It further called for the existing enterprises which are already registered under UAN or EM to re-register in Udyam under the new system by the cut off date of March 31, 2021.
Additionally, in August 2020, a notification by the Reserve Bank of India said that lenders may obtain the Udyam certificate from the entrepreneurs for lending purposes. It must be noted that there are an estimated 6.3 crore MSMEs that exist as per the National Sample Survey 73rd Round (2015-2016).
"Migration from Udyog to Udyam will also give many an escape route. Mostly the MSMEs do not register and self-declare about their existence because they find it more profitable to bypass the system wherein they would have to make declare their income tax, GSTIN among other things, said Saigal.
“Given that the registration process has become so easy almost next to nothing, a lot of MSMEs may register later when they wish to avail the Udyam benefits,” he said.
The Udyam portal similar to the Udyog Aadhar is a free, paperless online and instant registration portal.
Under the Udyam registration process, Aadhaar is made mandatory for entrepreneurs, whereas companies must provide their GSTIN and PAN along with the Aadhaar number. Moreover, every enterprise can have only one Udyam Registration Number, irrespective of the number of manufacturing and service activities it undertakes.
Earlier GST registration was mandatory for Udyam Registration but now it is exempted for those units who are not eligible for GST registration.
Under Udyam, the the government has integrated the system with the Trade Receivables Electronic Discounting System (TReDS) and the Government e-Marketplace (GeM) in order to attract more MSMEs to self-declare and avail benefits.