Classification of Micro, Small, and Medium Enterprises (MSMEs) – What You Need to Know ?

BY: IFFCO Kisan Finance
Mar 05, 2025

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MSMEs stand for Micro, Small, and Medium Enterprises. In fact, the sector has been considered to be the driving force behind the economic growth of a country or state. They are the backbone of employment generation and innovation in any economy.

These business entities positively contribute to the GDP and exports in India’s economy. That has made them an essential part of the overall economic framework of the nation.

Classification of Micro, Small and Medium Enterprises based on their performance assumes a lot of importance in the economic growth of the enterprises themselves and the nation as a whole. A proper classification of MSME determines access to government benefits, financial incentives, and compliance requirements.

What is an MSME?

MSMEs are defined and classified based on investment in plant and machinery or equipment and annual turnover. These enterprises are known to be a major part of India’s fiscal growth. In fact, the MSMEs are known to contribute to the development of the industrial sector and create employment opportunities. In fact, these business entities are more helpful in creating a strong economy in rural and semi urban areas.

Getting an MSME status for your business comes with several advantages. You can have easy access to credit, lower interest rates, government subsidies, and priority in public procurement. In fact, there are several government, semi government and private agencies that provide customized schemes for the MSME sector.

What is an MSME Certificate?

An MSME certificate refers to the official document issued by the Government of India to certify that a business qualifies as a Micro, Small or Medium Enterprise. You can avail the certificate through the Udyam Registration portal. The certificate entails you to several benefits that are designed for the MSME sector.

Eligibility

You can submit your application to the Udyam Registration. To be classified as an MSME, you need to satisfy the requirements in terms of investment and turnover. The eligibility conditions have been updated recently in the Union Budget 2025-26.

Benefits

Being classified as MSME offers you several benefits. You can avail these benefits through attached offices, autonomous bodies, and public sector undertakings.

A few of these benefits are

Government subsidies - An MSME entity is eligible for multiple financial assistance schemes announced by the government from time to time.
Lower Interest rates - Both government and private lenders offer affordable and flexible loans and lower interest rates for the MSME sector.
Tax exemptions - You can also get some tax relaxations and exemptions announced by the governments.
Exclusive tenders - Governments set aside a few specific tenders exclusively for the MSME sector.

The Revised Classification of MSMEs

The government of India introduced the new and updated MSME classification in July 2020. It has redefined the classification of MSMEs based on their investment capability and turnover. This has made it possible to provide a broader coverage and support for the sector.

The change was indeed in the right direction. In the earlier regime, the MSMEWs were classified based on their investments alone. The addition of turnover provides a more holistic assessment of the enterprise. That would mean a business will continue to get the benefits even when it is scaling up.

Classification Criteria: Investment and Turnover Limits

The new classification of Micro, Small, and Medium Enterprises takes into account both investment and turnover for classifying the businesses into the different categories.

The table below should give you a clear understanding of the classification effective in 2025 -

Enterprise Type	Investment	MSME Turnover Limit
Micro Enterprise	Rs 2.5 crore	Rs 10 crore
Small Enterprise	Rs 25 crore	Rs 100 crore
Medium Enterprise	Rs 125 crore	Rs 500 crore

If the turnover goes beyond Rs 500 crores per annum, the enterprise will no longer belong to the MSME sector. It will be considered a large-scale enterprise.

Even the credit facility for the MSME sector enhanced considerably. A new scheme for first-time entrepreneurs, especially women and marginalised groups is announced, the details of which will be available soon.

The new classification encourages the businesses to grow without the need to lose on the benefits.

How to Register for MSME Classification and Get Started?

You can easily register yourself as a MSME online through the Udyam Registration portal. It offers a seamless and one stop means to get started as a MSME entity.

Here is how you can register yourself for MSME classification

Visit the Udyam Registration portal
Enter your Adhaar Number and business details
Select the category you wish to register for
Verify your PAN card
Fill in the additional details. These include your business activities, bank details and any other relevant information
Review and submit your application

You should receive a unique registration number and the certificate. You will also receive a QR code that identifies your business.

Eligibility and documentation for MSME registration

You will need the following documents for registering yourself as a MSME

Aadhaar Card

Proprietorships – Adhaar Card of the Owner
Partnerships – Aadhar card details of the partners
Hindu Undivided Family (HUF) – Adhaar card of Karta
Companies, LLPs, Cooperative Societies, Societies, or Trusts – Adhaar card of the representative

PAN Card

PAN card in the name of the company registered as MSME

Proof of Business registration

Partnership deed
Certificate of incorporation in the case of a company
Registration certificate in the case of sole proprietorship

Address Proof

Electricity bills
Telephone bills
Property tax receipt

Investment Details

Details of investment in plant, machinery, or equipment.

Turnover Details

Financial statement of turnover

Bank Account Details

Bank account details of the company or sole proprietor

GST Registration Details

GST details if you are registered under GST

Importance of MSME Classification for Business Growth

MSME certification has been found to be quite practical and useful for any enterprise looking to scale up and get the best deals in terms of business growth.

It gives you access to government schemes

MSME registration classification helps you get access to multiple financial assistance schemes. You can avail Credit Guarantee Scheme, Technology Upgradation Programs and Marketing Support Initiatives.

Better Credit Options

Financial institutions like IFFCO Kisan Finance offer priority lending and customized credit schemes for the MSME sector.

Better Growth Prospects

MSME classification offers you

Improved market access
Government procurement advantages
Incentives for innovation and research

Government Schemes for MSMEs Based on Classification

Apart from the financial institutions, there are several government schemes and policies that benefit the growth of MSME entities.

Prime Minister’s Employment Generation Programme (PMEGP): Provides financial support for new businesses.
Udyam Registration: Simplifies MSME recognition and benefits access.
Credit Linked Capital Subsidy Scheme (CLCSS): Encourages technology adoption in MSMEs.

Tailored support for MSME sector

Government policies are also designed to address the challenges faced by the Micro, Small and Medium Enterprises.

Some of these examples include

Micro enterprises receive seed capital assistance.
Small enterprises benefit from lower taxation policies.
Medium enterprises enjoy incentives for expansion and export promotions.

Conclusion

MSME classification provides the enterprises with access to financial assistance, tax benefits, and government schemes. This can play a major role in business growth, and subsequently a better economy for the country as a whole. Understanding and obtaining MSME certification helps businesses unlock numerous opportunities.

Entrepreneurs and business owners should register for MSME classification to maximize their growth potential and gain a competitive edge in the market.