Micro, Small, and Medium Enterprises (MSMEs) form the backbone of India’s economy, contributing significantly to employment and GDP. To support the growth and competitiveness of these businesses, the Government of India has introduced several initiatives, including Udyam Registration. This registration provides numerous benefits, including financial assistance, subsidies, and tax exemptions. One of the most crucial advantages for MSMEs is the various income tax benefits that help ease the financial burden and promote sustainability.
Udyam Registration: An Overview
Udyam Registration is a government-mandated process that classifies MSMEs based on investment in plant and machinery or equipment and annual turnover. It replaces the earlier system of Udyog Aadhaar and simplifies the registration process for businesses.
Eligibility Criteria for Udyam Registration
MSMEs are classified into three categories based on investment and turnover:
- Micro Enterprises: Investment up to Rs. 1 crore and turnover up to Rs. 5 crore
- Small Enterprises: Investment up to Rs. 10 crore and turnover up to Rs. 50 crore
- Medium Enterprises: Investment up to Rs. 50 crore and turnover up to Rs. 250 crore
Steps for Udyam Registration
- Visit the official Udyam Registration portal.
- Provide Aadhaar details of the business owner.
- Fill in the business information, including PAN and GSTIN (if applicable).
- Submit the required details and generate the Udyam Registration Certificate.
Income Tax Benefits for MSMEs
Once an MSME registers under Udyam, it becomes eligible for various tax benefits that help reduce financial strain and improve cash flow.
1. Presumptive Taxation Scheme (Section 44AD and 44ADA)
Under the Presumptive Taxation Scheme, MSMEs with turnover up to Rs. 2 crore can declare their income at 8% (for non-digital transactions) or 6% (for digital transactions) of the total turnover, without maintaining detailed books of accounts.
For professionals such as architects, doctors, and consultants, Section 44ADA allows them to declare 50% of their gross receipts as profit for taxation purposes.
2. Deduction under Section 80JJAA
MSMEs that employ new workers can claim a deduction of 30% of the additional employee cost for three years under Section 80JJAA. This encourages businesses to generate employment.
3. Tax Holiday for Startups (Section 80-IAC)
Eligible MSMEs operating as startups can claim 100% tax exemption for three consecutive years out of the first ten years since incorporation under Section 80-IAC, provided their turnover does not exceed Rs. 100 crore.
4. Reduced Corporate Tax Rate
To boost MSMEs, the government reduced the corporate tax rate to 25% for businesses with a turnover of up to Rs. 400 crore, making tax compliance more manageable.
5. Additional Depreciation (Section 32)
MSMEs engaged in manufacturing can claim additional depreciation of 20% on new plant and machinery in the first year of use, reducing taxable income.
6. Exemption from Advance Tax
Under Section 211, businesses under the Presumptive Taxation Scheme are exempt from advance tax payments, thereby easing cash flow management.
7. Credit Linked Capital Subsidy Scheme (CLCSS)
Although not a direct tax benefit, MSMEs registered under Udyam can avail themselves of the Credit-Linked Capital Subsidy Scheme (CLCSS), which helps them upgrade technology at a subsidized cost, leading to indirect tax savings.
Other Benefits of Udyam Registration for MSMEs
- Priority Lending: MSMEs get easier access to bank loans at lower interest rates.
- Government Tenders: Registered MSMEs receive preference in government procurement.
- Protection Against Delayed Payments: MSMEs have legal protection under the MSME Development Act, ensuring timely payments from buyers.
- Subsidy on Patent Registration and ISO Certification: The government provides financial assistance for obtaining patents and quality certifications.
Note: You can also Update Udyam Certificate from our website
Conclusion
Udyam Registration is a gateway for MSMEs to access financial incentives, priority lending, and business growth opportunities. Additionally, the income tax benefits provided to registered MSMEs help reduce tax liability, improve profitability, and enhance overall business sustainability. By leveraging these benefits, small businesses can focus on expansion, innovation, and job creation, thereby contributing significantly to the Indian economy.
