Classification under the MSMED Act, 2006

Two Criteria, Not One

Under the MSMED Act, 2006 (as amended by government notification with effect from 1 July 2020), an enterprise — whether engaged in manufacturing or in providing services — is classified using two criteria together, not one alone:

1. Investment in plant and machinery or equipment.
2. Annual turnover of the enterprise.

An enterprise is placed in whichever of the two criteria (investment or turnover) puts it in the higher category — this is called the composite criterion. Notably, the older practice of classifying enterprises purely by the number of persons employed has been dropped; employment strength is no longer a legal classification test, even though MSMEs remain among the country's largest sources of employment after agriculture. It is also worth noting that, unlike the pre-2006 position, the current law does not classify enterprises separately as "manufacturing" and "service" — the same three-tier composite criterion applies to both.

The Three Tiers

(Figures as per the 2020 notification issued under the MSMED Act, 2006. These ceilings are revised from time to time by the Ministry of MSME through fresh notifications, so a student should treat any single year's limits as illustrative of the classification logic rather than as permanent numbers, and always check the Ministry's current notification for the figures applicable in a given examination year.)

Registration: Udyam …