Key Benefits of MSME Registration – A Guide for Indian Businesses

January 21, 2025

15 min read

Micro, small, and medium enterprises, more known as MSME, are an important sector globally. Minor businesses that do not cross a turnover of Rs. 200 crores at maximum comes under this category. A huge part of our growing population is benefitted from these enterprises as they promised employment options at low-cost investment. Export production from this part of the economic world helps in the country’s current development as well.

With India being a developing country, it becomes even more crucial for the government to support these vendors. The Ministry of Micro, Small, and Medium Enterprises mainly promotes the growth of this segment. MSME registration is under the UDYAM registration, and by this initiative, the ministry hopes to attract more such start-ups and businesses. This allows the opportunity to vouch for a few MSME government benefits.

The registration will require the business head or entrepreneur to submit a few documents like

Aadhar card
PAN card
Number of employees
Place of organization
Investment turnover per year

The registration of the company is quite beneficial in many aspects of the business. This process qualifies them for subsidies offered under the MSME Development Act. The central and state governments and union territories have developed unique packages and offer various benefits under schemes directed towards expansion and greater economic contribution from these enterprises.

What is MSME Registration and Why is it Important?

MSME registration is a formal process through which businesses obtain a certificate from the government, recognising them as Micro, Small, or Medium Enterprises. It is issued by the Ministry of Micro, Small, and Medium Enterprises under the MSMED Act. While it is not mandatory, it is highly advantageous for accessing various government benefits. One of the key advantages of registration is the eligibility for government schemes. This includes priority sector loans, tax exemptions, and subsidies. This registration enhances a business’s credibility and makes it easier to secure finance and attract customers or investors.

The application process has become streamlined. It allows businesses to register online via the MSME Udyam Registration Portal at https://udyamregistration.gov.in/. With minimal documentation required, the process is user-friendly. Plus, when it comes to the MSME registration fees, it is free of cost. It makes it significantly easier for small and medium businesses to register without additional financial burden. Once verified, businesses receive their MSME registration certificates. It unlocks a range of benefits that can significantly enhance their growth potential.

Sanctions and Laws Under MSME

The main government benefits are easy and early MSME loan sanctions for setting up as well as the progress of these industries considering it the priority sector. The interest rates are slashed, and they also enjoy the benefit of excise exemption and exemption under Direct Tax Laws. There is also a reservation under the Interest on Delayed Payments Act. Tax subsidies, Power Tariff subsidies, and capital investment subsidies are a few support systems for the registered units. The Government encourages the development of specialized industrial estates and sanctions loans readily.

MSMEs contribute nearly 30% of India’s gross domestic product and 45% of the manufacturing output. MSMEs create a vast range of job opportunities for the local community and utilize the local resources, thereby cutting down the cost of production. Furthermore, when this is integrated with the latest technology and modern equipment, productivity can be achieved.

What Are The Advantages Of Obtaining Udyam Registration?

Collateral free bank loan: Small Industries Development Bank of India (SIDBI) established a trust called Credit Guarantee Fund Trust for Micro and small enterprises under which MSME loan eligibility is awarded. These collateral-free loans minimise the risk for small businesses, encouraging them to seek funding without the need to pledge valuable assets. This initiative plays a crucial role in promoting financial inclusion and business expansion, especially for new and emerging MSMEs.
Interest rate exemption: A minimum of 1% benefit on overdraft is made available. The bank offers loans to the businesses on the basis of reported turnover on their GST return.Plus, the deduction of interest on business loans under Section 36(1)(iii) of the Income Tax Act helps reduce taxable income. It reduces the overall tax burden for MSMEs. This exemption can significantly lower the cost of borrowing. It makes it easier for MSMEs to manage their working capital. It also provides added financial cushion, helping small businesses to stay competitive in a challenging market environment.
Delayed payment protection: The buyers from any registered MSME are required to clear the payments within a period of 15 days of receiving the goods or services, failing which compound interest is levied upon the monthly amounts agreed to be paid. This can be up to three times the rate notified by the RBI. This protection not only ensures timely payments but also helps maintain a steady cash flow. This is essential for maintaining day-to-day operations. It strengthens the bargaining power of MSMEs and safeguards them from prolonged payment cycles that could otherwise harm their financial health.
Free ISO Certification: ISO certification is a vital asset for MSMEs as it enhances their credibility, aligns their processes with international standards, and opens up new business opportunities. The cost of obtaining this certification can be prohibitive for small businesses, but registered MSMEs can access this certification for free or at a significantly reduced cost. This benefit empowers MSMEs to compete on a global scale, improve their operational quality and build trust with customers and partners.
Access to international trade fairs: Business delegates from the registered MSMEs are funded by the government of India to participate in international exhibition trade fairs and trades meets or for knowledge exchange in the seminars and conferences held across the globe. This International Cooperation scheme allows exposure to the newer dimension of industrialization. Participation in these global platforms helps MSMEs build international networks, gain market insights, and explore export opportunities. It also provides a stage to showcase innovative products and services. It potentially leads to new business partnerships and expansion into foreign markets.
Exemptions: Mainly from Stamp Duty and Registration and processing fee for the new industrial units as well as Direct Tax exemption in the initial years of establishment of the unit until profit generation. These exemptions help reduce the financial burden on new businesses, enabling them to invest more in operations and growth. By easing these financial obligations, MSMEs can achieve quicker returns on their investments and focus on scaling their businesses.
Subsidies: BarCode registration subsidy, ISO certification subsidy, Power tariff concessions, and credit Rating subsidy, NSIC Performance subsidy, IPS-Industrial Promotion subsidy are a few other MSME government benefits. MSMEs are also eligible for a significant subsidy on the cost of patent registration. It allows them to protect their innovations without a heavy financial burden. These subsidies are designed to reduce operating costs, enhance business credibility, and improve access to critical resources. By availing of these subsidies, MSMEs can better compete with larger enterprises and invest in quality improvements that drive customer satisfaction and loyalty.
Tenders: The Government reserves tenders particularly to the MSMEs in order to promote their growth. In order to help these industries advance technologically, a scheme called the Credit Linked Subsidy scheme is in force for the up-gradation and utilization of technology by these establishments. This reserved access to tenders provides a guaranteed market. It allows MSMEs to secure government contracts that can boost their revenue significantly. It also encourages technological advancements, making businesses more efficient and able to meet higher industry standards.
Budgets: Maximum budgetary support in various areas such as participation in exhibitions, capacity building, modern packaging, the revival of traditional industries, creation of common facility centers, and many more. This financial banking empowers MSMEs to modernise their operations, improve productivity, and adopt sustainable business practices. The allocated budgets also help in preserving and promoting traditional skills. It ensures these industries remain viable and relevant in the modern economy.
Upgradation: Assistance and support to traditional industry artisans to provide them sustainable employment through setting up infrastructure, raw materials, and skill development. This support revitalises traditional industries and helps in preserving cultural heritage by sustaining artisanal crafts. By enhancing skills and providing better access to resources, artisans can produce higher-quality goods, access new markets, and achieve economic independence.

Tax Benefits of MSME Registration

Increased Depreciation Benefits: Depreciation benefits are enhanced for qualifying assets, as capitalised interest on borrowed funds can be added to the acquisition cost. This increases the depreciation base, allowing businesses to claim higher deductions over the asset’s useful life. This further reduces the taxable income. By optimising tax liability, MSMEs can allocate more resources towards expanding their operations or upgrading equipment.
Employment Generation Incentive: Under Section 80JJAA, MSMEs that generate new employment can claim deductions for additional employee costs, promoting job creation. This incentive not only supports businesses in managing their payroll expenses but also encourages the hiring of more workers. It contributes to economic growth. It is particularly advantageous for labour-intensive sectors, helping them balance workforce expansion with financial sustainability.

Reduced Tax Rates: Manufacturing MSMEs with turnover under ₹400 crore can opt for a reduced corporate tax rate of 25% under Section 115BA, providing they forgo various other deductions and exemptions. Alternatively, companies can choose a flat tax rate of 22% under Section 115BAA, simplifying compliance while benefiting from lower rates. This offers businesses the flexibility to select a tax regime that best suits their financial strategy.

Capital Gains Tax Exemption: Section 54G provides capital gains tax exemption if the gains from the sale of long-term assets are reinvested in eligible startups. It fosters investment in new businesses. This helps entrepreneurs defer or avoid hefty tax bills, encouraging them to reinvest profits into expanding their ventures. It acts as a catalyst for innovation and growth of emerging sectors.

Investment Allowance: Businesses investing in new plants and machinery can claim an investment allowance under Section 32AC. It reduces their taxable income. This incentive aims to boost industrial productivity by making it more affordable for companies to modernise their operations. It is a strategic advantage for MSMEs looking to scale up or enhance their technological capabilities.

GST Composition Scheme: MSMEs with turnover up to ₹1.5 crore can opt for the GST Composition Scheme. This simplifies tax compliance and reduces overall tax rates. This scheme is designed to ease the burden of frequent filings and complex GST calculations. It allows small businesses to focus more on operations. It is particularly beneficial for micro-enterprises and businesses with straightforward accounting needs.

Maximising Deductions: Routine business expenses such as rent, salaries, and depreciation are deductibles. It reduces taxable income and frees up funds for other uses. These deductions help in optimising overall tax planning and maintaining a healthy financial position. They are critical for managing operational costs and ensuring business sustainability, especially during challenging economic times.

Timely Payment Incentive: Section 43B(h) incentivizes timely payments to MSMEs by allowing deductions only if payments are made within the prescribed time frame. This provision helps maintain healthy cash flow for small businesses, ensuring they receive payments on time. Plus, mechanisms like the Samadhan Portal enable MSMEs to file complaints against non-paying customers. This platform ensures that MSMEs receive tier dues promptly. Both of these aspects act as a safeguard against delayed receivables. It promotes financial discipline among larger companies dealing with MSMEs.

Startup India Tax Benefits: Startups, including MSMEs, can avail of income tax exemption for three consecutive years out of the first ten years under the Startup Initiative. This provides significant financial relief during the early growth phase. It allows startups to reinvest savings into the business operations. It enables a supportive environment for new ventures, encouraging innovation and entrepreneurship.

Presumptive Taxation Scheme: Section 44AD allows small businesses to simplify their tax filings by declaring income at a prescribed rate on total turnover, reducing administrative burdens. This scheme is designed to help micro and small businesses with straightforward operations avoid complex accounting requirements. The threshold for eligibility has been increased, making it accessible to a broader range of enterprises.
Extended Carry Forward Period for MAT: The carry forward period for Minimum Alternate Tax (MAT) credit has been extended up to 15 years. It aids in better financial planning. This extension allows businesses more time to utilise their MAT credits against future tax liabilities. It provides flexibility in long-term tax management. It is particularly useful for MSME businesses with fluctuating income patterns. It ensures they can maximise the benefits of their tax credits over an extended period.

Types of Industries under MSME

Many local and traditional artistry and hallmarks of our community are kept alive by often encouragement and support from our government.

The Coir industry Technology up-gradation scheme

Maila Coir Yojana
Pottery activity under Gramodyog
Bee-keeping Activity
Agarbatti making Project
Traditional candy and sweetmeat and savoury industries
Handweaving
ceramic painting
leather goods making
century-old doll making

These are the parts of the rich and vibrant heritage of our proud country that were dying a slow death until they came under the umbrella of support schemes from MSME government benefits.

Marketing and Financial Support

Under the procurement and marketing support schemes, the sector’s marketability of products and services is enhanced. Newmarket access initiatives and awareness about market-relevant topics are created. Tool rooms and technical institutions are established pan India for the development of trained personnel in tooling and related areas. Registered MSMEs have access to enroll their staff for special training programs as well as hire from this industry-ready manpower.

Financial assistance is provided to the artisans who belong to the BPL- Below Poverty Line category. Identification of poor artisan groups is made through an open and transparent process and guided to work for small industries for a regular income, thereby creating a symbiotic relationship between the maker and the mentor.

Conclusion

The schemes, budget plans, credit-free loans, and more are just some of the many profits under MSME registration. This not only acts as a boosting incentive but also, as sets the commercial turnover to global and international levels. MSME registration in India also opens doors to better funding options and exclusive access to government tenders. This can drive significant business growth. It helps businesses build credibility and establish a strong market presence, making them more attractive to potential partners and investors. The central, and state governments and union territories have developed unique packages and offer various benefits under several schemes. Especially directed towards expansion and greater economic contribution from these enterprises. MSME government benefits can be utilized by all kinds of enterprises.

Lendingkart is committed to supporting small businesses by simplifying the MSME registration online process and offering tailored MSME loans to help them thrive. With flexible repayment options and quick disbursement, Lendingkart empowers entrepreneurs to leverage government benefits effectively and scale their operations with ease.

FAQs:

1. What are the primary advantages of obtaining MSME registration for small and medium-sized enterprises?

Obtaining MSME registration offers a gamut of advantages for small and medium-sized enterprises (SMEs). It provides access to various benefits, including government schemes, subsidies, and priority sector lending. MSME registration facilitates easier access to credit, fostering growth through better loan opportunities. Additionally, it enables preferential treatment in government tenders, fostering market competitiveness and enhancing business prospects.

2. How does MSME registration assist businesses in gaining financial and credit benefits?

MSME registration unlocks a treasure trove of financial perks for businesses. It grants access to various schemes, subsidies, and incentives from the government. Through this registration, companies enjoy reduced interest rates on loans, preferential treatment in procuring tenders, and easier access to credit. It also enhances credibility, opening doors to partnerships and collaborations, fostering growth and stability

3. What government schemes and incentives are accessible exclusively for MSME-registered entities in India?

MSME-registered entities in India gain access to an array of exclusive government schemes and incentives. Benefits include priority sector lending, lower interest rates, credit guarantee schemes, and easier loan approvals. Additionally, they enjoy subsidies on patent registration and reimbursement for expenses on ISO certification. These incentives aim to foster growth, innovation, and financial stability, supporting the development of small and medium enterprises.

4. Are there any specific tax benefits associated with MSME registration, and how do they aid businesses?

Certainly! MSME registration offers various tax benefits that aid businesses significantly. These benefits encompass lower income tax rates, exemptions, and deductions, fostering financial stability and growth. Additionally, MSMEs enjoy easier access to credit facilities like the MSME loan, providing favorable terms and interest rates, empowering them to expand operations and invest in innovation. These incentives collectively bolster the financial health and sustainability of registered MSMEs.