Micro Enterprise

Micro enterprises are understood in India as enterprises where the investment in plant and machinery or equipments is upto Rs. 25 lakhs ( ͌ US $ 0.04 million) in case of a manufacturing industry^[1] and upto Rs. 10 lakh ( ͌ US $ 0.02 million) in case of a service sector enterprise^[2].

This definition is provided in Section 7 of Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act) and was notified in September 2006.

The enterprises can take any form - proprietorship, company, cooperative, association of persons, Hindu Undivided Family^[3] , partnership etc. Further, this definition is not restricted by the number of persons employed by the firm nor the electricity consumed by the firm, as is practiced in some other countries like European Union.

Ministry of MSME has decided in November 2014 for an amendment to the MSMED Act, 2006 to double the investment limits of micro enterprises. The bill is yet to be tabled in the Parliament.

As on date, there is no item reserved for exclusive manufacture in the micro small and medium scale sector unlike such a provision that existed during during pre-liberalisation phase (On 10.04.2015 Government has dereserved the remaining 20 items from the erstwhile list of items reserved for exclusive manufacture in Small scale industries (now – Micro and Small Enterprises)).

1.Manufacturing Enterprises are the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951 or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.

2.Service Enterprises are the enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

3.The term 'Hindu Undivided Family' has not been defined under the Income Tax Act. It is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. A HUF cannot be formed by a group of people who do not constitute a family; lineal descendents with a common ancestor is a must. Even though Jain and Sikh families are not governed by the Hindu law, they can still be treated as a HUF. A HUF gets created the moment a person marries. (Source: knowledge.icsi.edu presentation by by Nikhil Agarwal & Sudhir Saklani)

Also See

Small and Medium Scale Enterprises (SMEs)

Contributed by

• Rosemary K. Abraham, IES(2006)
• Email- rosemary.a@nic.in