I. Revised Classification Criteria (w.e.f. July 1, 2020)

1. Calculation of Investment in Plant & Machinery:

a. Existing Enterprises – Adoption of investment value from Income Tax Return.

b. New Enterprises – Self Declaration Basis.

c. Definition of Plant & Machinery and Equipment – As per Income Tax Act.

d. Purchase Value – Exclusive of GST.

e. Exclusions – Cost of Pollution Control Equipment, Research & Development Equipment, Industries Safety Devices.

f. Old or New Machinery – Both.

2. Calculation of Turnover:

a. Exclusions – Export Turnover (Both goods and services).

b. Data Source – Income Tax Returns or GST Returns.

3. Other Points:

a. Consideration of Turnover & Investment of the previous financial year.

b. Mandatory annual update of Udyam Registration.

c. Classification changes (Up or Down) based on Investment & Turnover.

d. Non-updated registrations result in suspension; cancellation is also possible.

e. One Udyam Registration for all enterprise branches.

f. One Aadhar One Udyam Registration.

II. Case Study: Udyam Registration of Multiple Entities

Scenario: Mr. Lava, a partner in Rama & Co., wants to register his new firm, M/s. Lava & Co., under Udyam Registration using his Aadhar. Is it possible?

III. Expansion of Udyam Registration Activities (from July 2, 2021)

Allowed Activities:

a. Wholesale and retail trade and repair of motor vehicle and motorcycles.

b. Wholesale trade except for motor vehicles and motorcycles.

c. Retail Trade except for motor vehicles and motorcycles.

IV. Compliance Requirements for Transactions with Micro & Small Enterprises

A. Compliances under MSMED Act:

1. Requirement to specify unpaid amount with interest in the annual statement of accounts (Sec 22).

2. Buyer’s liability to make payment within 45 days (Sec 15).

3. Interest on delayed payments at 3 times the Bank Rate (Sec 16).

4. Interest paid to Micro and Small Enterprise not allowed as deduction (Sec 23).

B. Compliances under Income Tax Act:

1. Clause 22 of Form No.3CD: Amount of interest inadmissible under MSMED Act.

2. Finance Bill 2023 proposal: Deduction allowed on actual payment beyond specified time (amendment to Sec 43).

3. TDS on Interest Payments: TDS u/s 194Q applicable on interest paid on delayed payments to creditors.

C. Compliances under Companies Act:

Form MSME-1 Filing:

a. Submission of outstanding dues details to ROC.

b. Applicability based on buyer and seller classifications.

Other Points:

• No special compliances for sale to or loans with MSMEs as of the current date.

V. Case Study: Mr. Raavan’s Credit Transaction

• Analysis of disclosures if payment is not made by the due date.

VI. Additional Points and Queries:

• Applicability of compliances based on enterprise classification and Udyam Registration.

• Availability of enterprise classification publicly.

• Absence of special compliances for certain transactions.

This comprehensive overview delineates the compliance requirements associated with transactions involving Micro and Small Enterprises, encompassing criteria revisions, calculation methodologies, and statutory obligations under the MSMED Act, Income Tax Act, and Companies Act.