At a glance
India classifies businesses as micro, small or medium enterprises (MSMEs) under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Since 2020 the test is a composite one: a firm's investment in plant, machinery or equipment and its annual turnover, with the same limits for manufacturing and services. The limits were last raised from 1 April 2025.
Key facts
- Law: MSMED Act, 2006
- Ministry: Ministry of Micro, Small and Medium Enterprises
- Current limits notified: S.O. 1364(E), 21 March 2025, effective 1 April 2025
- Announced in: Union Budget 2025-26 (investment limits ×2.5, turnover limits ×2)
- Registration: Udyam Registration (online, free, self-declaration), since 1 July 2020
- Informal micro units: Udyam Assist Platform
- Delayed payments: buyers must pay MSEs within 45 days (MSMED Act); tax law disallows late payments as expenses (Section 43B(h))
- Development bank: SIDBI (HQ Lucknow)
- New fund: SME Growth Fund, ₹10,000 crore, approved by Cabinet on 6 October 2026
How it works
Classification from 1 April 2025 (both tests apply):
| Category | Investment up to | Turnover up to |
|---|---|---|
| Micro | ₹2.5 crore | ₹10 crore |
| Small | ₹25 crore | ₹100 crore |
| Medium | ₹125 crore | ₹500 crore |
Earlier (2020–25) limits were ₹1/10/50 crore for investment and ₹5/50/250 crore for turnover.
- Moving up: crossing either limit moves a firm to the next category. Moving down needs it to fall below both.
- PAN-based: all units with GSTINs under one PAN count as one enterprise.
- Exports are excluded from turnover.
- Before 2020, the Act used investment only, with separate limits for manufacturing and services.
Main schemes and funds:
- CGTMSE: collateral-free credit guarantees for micro and small units
- PMEGP: credit-linked subsidy for new micro enterprises
- PM Vishwakarma: support for traditional artisans
- Self-Reliant India (SRI) Fund: equity for MSMEs through a fund-of-funds
- SME Growth Fund (2026): ₹10,000 crore government commitment for growth-stage equity through an AIF
- MSME lending counts under priority sector lending
Timeline
- 2006: MSMED Act passed
- 2020: Composite investment-plus-turnover test; Udyam Registration launched (1 July)
- 2025: Limits raised (from 1 April)
- 2026: SME Growth Fund approved (6 October)
Recent developments
- 06 Oct 2026: The Cabinet approved a ₹10,000 crore government commitment to set up the SME Growth Fund, announced in the Union Budget 2026-27. It will make direct equity investments in small and medium firms, mainly manufacturing, through a SEBI-regulated Alternative Investment Fund.
Exam traps
- Since 2020 there is no separate limit for manufacturing and services.
- Medium turnover limit is ₹500 crore, not ₹250 crore (the old figure).
- Udyam replaced Udyog Aadhaar; it is free and needs no documents beyond PAN/Aadhaar-based self-declaration.
- The 45-day payment rule protects micro and small suppliers, not medium ones.
- SIDBI is headquartered in Lucknow, not Mumbai.
Quick check
- Q: What is the investment limit for a micro enterprise now? A: ₹2.5 crore.
- Q: Under which Act are MSMEs classified? A: The MSMED Act, 2006.
- Q: Through what vehicle will the SME Growth Fund invest? A: An Alternative Investment Fund.
Sources
- https://newsonair.gov.in/govt-notifies-revised-criteria-for-classifying-msmes
- https://www.taxmann.com/post/blog/govt-revises-investment-and-turnover-criteria-for-classifying-enterprises-as-msmes
- https://www.deccanherald.com/business/govt-notifies-revisions-to-investment-turnover-criteria-for-msmes-to-take-effect-from-april-1-3459255
- https://msme.gov.in/
In the news
Every time this topic has appeared in our current affairs, newest first:
- Week of 1–7 October 2026₹10,000 crore SME Growth Fund approved