The Cabinet on Wednesday approved the change in the criteria for classifying micro, small and medium enterprises (MSMEs) from investment in plant and machinery/equipment to annual turnover.
"Section 7 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 will accordingly be amended to define units producing goods and rendering services in terms of annual turnover," an official statement said.
A micro-enterprise will be defined as a unit where the annual turnover does not exceed Rs 5 crore, it said, adding a small enterprise will be defined as a unit where the annual turnover is more than Rs 5 crore but does not exceed Rs 75 crore, similarly, a medium enterprise will be defined as a unit where the annual turnover is more than Rs 75 crore but does not exceed Rs 250 crore.
"Additionally, the Central government may, by notification, vary turnover limits, which shall not exceed thrice the limits specified in Section 7 of the MSMED Act," the statement said.
"This will encourage ease of doing business, make the norms of classification growth-oriented and align them with the new tax regime revolving around GST (Goods & Services Tax)," it said.
At present, the MSMED Act (Section 7) classifies the Micro, Small and Medium Enterprises (MSMEs) on the basis of investment in plant and machinery for manufacturing units, and investment in equipment for service enterprises.