MSME Classification in India: Criteria, Benefits & Registration Guide

Micro, Small and Medium Enterprises (MSMEs) form the backbone of India’s economy. They generate employment, drive innovation and support both urban and rural development. To ensure these enterprises get the right kind of support, the government has introduced a structured system of classification. This MSME classification helps businesses access schemes, loans and benefits designed specifically for their scale of operation.

Understanding the criteria, the recent updates, and how classification impacts financial opportunities is crucial for any entrepreneur or business owner.

What is MSME Classification?

MSME classification refers to the process of categorising businesses into micro, small or medium enterprises based on investment and turnover thresholds. The purpose is to provide the right kind of support depending on the size of the business.

In the past, enterprises could only be classified as MSMEs based on their investment in their plant and machinery for manufacturing and equipment for services; this excluded many other growing enterprises. The Government of India revised the parameters in 2020, so that investment and turnover are now considered simultaneously. This was a more inclusive classification and would allow more enterprises to benefit from this classification.

The Government of India has established a two-parameter classification of Micro, Small and Medium Enterprises (MSMEs). Basically, it evaluates both the investment in plant, machinery and equipment and the annual turnover at the same time. The enterprise needs to comply with the specified limits on both parameters to qualify in a particular type of enterprise category.

In terms of investment, Micro Enterprises are defined as those investing up to ₹1 crore, Small Enterprises up to ₹10 crore, and Medium Enterprises up to ₹50 crore. Similarly, in terms of annual turnover, Micro Enterprises have a limit of ₹5 crore, Small Enterprises up to ₹50 crore and Medium Enterprises up to ₹250 crore.

This dual framework ensures a balanced and fair classification that considers not only the scale of investment but also the actual revenue generated, making the system more inclusive across both manufacturing and service sectors.

Also Read: What is MSME

MSME Classification – Investment & Turnover Limits

New MSME Classification System & Recent Changes (2025 Update)

In the Union Budget 2025, the government introduced further reforms to give MSMEs more flexibility:

• Investment thresholds raised 2.5 times across categories.
• Turnover thresholds doubled to allow more businesses to benefit.
• No separate definitions for manufacturing and service enterprises - a single unified classification now applies to both.

Old vs. New System at a Glance

These revisions mean that businesses no longer must worry about outgrowing the classification too quickly. It also encourages them to scale without losing access to government-backed incentives.

Benefits of MSME Classification in India

Being officially recognised as an MSME comes with significant advantages:

• Access to collateral-free loans under schemes such as the Credit Guarantee Fund.
• Tax benefits and GST concessions designed to improve liquidity.
• Preference in government procurement via the GeM (Government e-Marketplace).
• Marketing and technology support, including subsidies for patent registration.
• Simplified compliance, allowing entrepreneurs to focus more on growth.

These benefits not only reduce financial burdens but also enhance competitiveness in domestic and global markets.

Also Read: How Digital Onboarding Simplifies MSME Loan Processes

How to Register Your MSME: Step-by-Step Guide

Registration is mandatory to avail benefits under the MSME classification. The process is simple through the Udyam Registration portal.

1. Visit the Udyam Registration portal.
2. Enter Aadhaar details and business PAN.
3. Provide enterprise information - investment, turnover and activity type.
4. Upload documents such as bank details and GST registration, if applicable.
5. Submit the form and receive a unique Udyam Registration Number.

It is advisable to keep your enterprise details updated annually to remain eligible under the correct classification.

Role of MSME Classification in Boosting India’s Economy

The contribution of MSMEs to India’s GDP is immense, around 30% according to recent estimates. They also account for nearly half of India’s exports and employ millions across the country.

By updating the classification framework, the government ensures that enterprises can grow without being cut off from vital support. This aligns with the Atmanirbhar Bharat mission and encourages innovation, skill development and adoption of new technology.

Also Read: MSME Certification: Why is it Important?

Impact of MSME Classification on Business Loans and Financial Assistance

One of the most practical advantages of MSME classification is easier access to credit. Banks and NBFCs are more willing to extend Business Loan to registered MSMEs as they are backed by government guarantees.

• Collateral-free loans reduce the risk for first-time entrepreneurs.
• Flexible repayment options support cash flow stability.
• Lower interest rates improve affordability.
• Quick disbursal ensures working capital needs are met without delay.

If you are exploring financing, you can check your loan eligibility quickly with the Business Loan EMI Calculator and customise repayment plans that match your growth path.

Final Thoughts

The MSME classification is a door to growth. When you understand where your enterprise is classified, you can access several benefits that reduce your costs, increase your credibility and put you in a position to apply for new opportunities. With the new updates being introduced by 2025, the classification could not have clearer intentions to include young businesses and help businesses grow by not fearing losing their status.

If you are looking to scale your business, gain access to MSME financial products today and apply for registration.

Apply now for a Business Loan for MSME.

FAQs

Q.1. What is the turnover limit for MSMEs listed under the new classification?

A. According to the change in classification (2020), Micro enterprises have a turnover up to ₹10 crore, Small up to ₹100 crore, and Medium up to ₹500 crore. This change was made to remain consistent with current conditions in the economy and broadens the definition of MSMEs.

Q.2. Can service-based businesses be classified as MSMEs?

A. Yes, a service-based enterprise can be classified as MSMEs. There is no distinction between manufacturing and services under the 2020 reform.

Q.3. What are the benefits of going through the MSME classification?

A. MSMEs can access loans, subsidies, tax concessions and government procurement. They can avail of benefits in other government schemes, and ease of compliance.

Q.4. How frequently can MSME classification parameters fluctuate and how to follow the changes?

A. The government makes changes to the limits from time to time, especially during periods of economic reforms or Union Budgets. Entrepreneurs must therefore keep track of official notifications, budget speeches, and announcements from the MSME ministry.

Q.5. Is MSME registration necessary to avail of government schemes?

A. Yes, businesses must register on the Udyam portal in order to claim MSME benefits. Registration is paperless and self-declared and will provide you with a unique Udyam Registration Number.

Q.6. How does MSME classification impact taxes and GST?

A. MSMEs may benefit from GST waivers, extra periods to file returns, and simplified compliance. They also get protection under the delayed payment rule, ensuring buyers settle dues within 45 days.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.