Are you a Micro, Small or a Medium Enterprise? Don’t know it yet?
Here is a clear idea of which category you belong to.
The Government of India enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on June 16, 2006; that was notified on October 2, 2006. Subject to this act, RBI has set the below parameters to identify enterprises falling under Micro, Small and Medium Enterprises based on their investment in Plant & Machinery and Equipment
Wish to know where do you fall in – for being fit in the definition?
Let’s have a brief look here:
- Manufacturing Enterprises: It is a business entity established to produce goods, pertaining to its industry for sale to wholesalers, retailers or end consumers.
- Service Enterprises: It includes entities engaged in maintenance, repair, testing of electronic or electrical equipments/instruments i.e. measuring/controlling instrument servicing of all types of vehicles and machineries including televisions, tape recorders, VCRs, Radios, Transformers, Motors, Watches, etc.
Are you confused whether you fall in the category of Manufacturing or Service Enterprise? Or is your business a mix of the above activities?
Here is the answer:
- You may be in a business where neither of the above-mentioned categories is carried out individually. For example, a doctor may have a medical shop attached to his dispensary; or a restaurant may run an STD booth outside its premises, etc.
- Each of such activities is to be treated as a separate enterprise if the information for them is separately available. If the accounts are not separable, then the data will pertain to the enterprise as a whole.
- Here, the major activity will be taken into consideration. Major activity refers to the activity, which yields maximum income/ turnover/ employment in the order of their preference. In the case of mixed activity of manufacturing and trade such as handloom weavers, sweetmeat shops; manufacturing will be taken as the major activity by convention.
In terms of the above definition, the original price of a plant and machinery/equipment is considered, irrespective of whether the plant and machinery/equipment are new or second hand.
In case of imported machinery/ equipment, following charges shall be included:
- Import duty
- Shipping charges
- Custom Clearance charges
- Sales Tax/ Value Added Tax (VAT)
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Plant & Machinery:
Plant and machinery is an asset that is used by a business for the purpose of carrying out the business. It does not include a stock in trade, the business premises or any part of the business premises.
Machinery will have moving working parts, and the plant will not. The working parts of a machine can also be considered to be a part of the machinery.
A plant is the name given to a collection of machinery/ equipment/ devices installed for the purpose of operation of entrepreneurial activities. Machinery is an implement or mechanical device used in the entrepreneurial activities.
Equipment is that tangible property (other than land or buildings) that is used in the operations of a service entity. Examples of equipment include devices, tools, and vehicles.
Costs excluded from Plant & Machinery/ Equipment:
- Equipment such as tools, jigs, dyes, moulds, and spare parts used for maintenance.
- Costs incurred in the installation of a plant and machinery.
- Research and development and pollution control of equipment.
- Power generation set and extra transformer installed by the enterprises as per the regulations notified under State Electricity Board (SEB).
- Charges from Bank and Service Charges paid to National Small Industries Corporation (NSIC) or State Small Industries Corporation (SSIC) will also be excluded.
- Procurement or installation of cables/wires, wiring bus bars, electrical control panels (not mounted on individual machines).
- Oil circuit breakers or miniature circuit breakers that provide electrical power to the plant and machinery; or for safety and security measures.
- Gas producer plant.
- Transportation charges (other than sales tax, VAT, excise duty) for indigenous machinery from the place of their manufacture to the site).
- Charges paid for technical know-how for erection of plant machinery and other types of equipment.
- Storage tanks which store raw materials and finished products; but are not linked with the manufacturing process.
- Fire-fighting equipment and such other items as may be specified, by notification from time to time.