Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in India's economic growth. To support these businesses, the government offers several benefits, including tax incentives. One of the key initiatives to help MSMEs is Udyam Registration. By registering under Udyam, businesses can enjoy various tax benefits that reduce their financial burden and encourage growth. In this article, we will discuss how Udyam Registration helps with tax benefits for MSMEs in simple words.

What is Udyam Registration?

Udyam Registration is an official process for MSMEs to register themselves under the Ministry of Micro, Small, and Medium Enterprises (MSME). It provides a unique identification number and a certificate that allows businesses to avail of government schemes, subsidies, and tax benefits.

The registration process is simple, free of cost, and can be done online on the Udyam Registration portal. Businesses classified as micro, small, or medium enterprises based on their investment in plant & machinery or equipment and annual turnover are eligible to register.

Tax Benefits of Udyam Registration for MSMEs

MSMEs that register under Udyam can enjoy several tax benefits. These include exemption from direct taxes, lower tax rates, rebates, and easier compliance with tax regulations. Let’s explore these benefits in detail:

1. Income Tax Exemption

One of the major advantages of Udyam Registration is income tax exemption. MSMEs can claim deductions under the Income Tax Act, 1961, in different ways:

• Presumptive Taxation Scheme (PTS): MSMEs with a turnover of up to Rs. 2 crore (for businesses) and Rs. 50 lakh (for professionals) can opt for the Presumptive Taxation Scheme (PTS) under Sections 44AD and 44ADA. This allows them to pay tax on only a portion of their income instead of maintaining detailed accounts.

• Exemptions on Export Profits: Businesses engaged in exports can avail of tax deductions under Section 80HHC, reducing their overall tax liability.

• Tax Deductions on Depreciation: MSMEs can claim higher depreciation on machinery and equipment used for business, allowing them to lower their taxable income.

2. GST Benefits and Exemptions

Udyam-registered MSMEs get various Goods and Services Tax (GST) benefits, making tax compliance easier:

• GST Exemption: Businesses with an annual turnover of up to Rs. 40 lakh (for goods) and Rs. 20 lakh (for services) are not required to register for GST.

• Composition Scheme: MSMEs with a turnover of up to Rs. 1.5 crore can opt for the GST Composition Scheme, which allows them to pay tax at a lower rate and reduces compliance requirements.

• Input Tax Credit (ITC): Registered MSMEs can claim Input Tax Credit (ITC) on goods and services purchased, reducing their overall tax burden.

3. Subsidies on Tax Payments

Many state governments offer subsidies on taxes for MSMEs. These may include:

• Lower property tax rates for MSMEs operating from their own premises.

• Concessions on electricity bills, which indirectly reduce tax liability.

• Subsidized stamp duty and registration charges when purchasing land for business purposes.

4. Reduced Interest Rates and Tax Rebates on Loans

MSMEs with Udyam Registration can avail of business loans at lower interest rates. Some of these loans qualify for interest subsidies, which helps in reducing tax burdens indirectly. The government also provides tax deductions on interest paid for business loans, further helping MSMEs save money.

5. Reimbursement of ISO Certification Costs

The government reimburses expenses incurred on ISO certification for Udyam-registered MSMEs. This reduces operational costs, which in turn lowers the taxable income.

6. Carry Forward of Business Losses

Udyam-registered MSMEs can carry forward business losses for up to 8 years under the Income Tax Act. This means if an MSME incurs a loss in a financial year, it can adjust the losses against future profits and reduce tax liability.

7. Exemption from ESI and EPF Contribution in Certain Cases

Some MSMEs, especially micro-enterprises, are exempt from paying contributions towards the Employees’ State Insurance (ESI) and Employees’ Provident Fund (EPF). This helps in saving costs and reducing overall tax expenses.

8. Credit Guarantee and Collateral-Free Loans

Under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme, Udyam-registered MSMEs can avail of collateral-free loans. While this does not directly reduce taxes, it helps in securing funds without additional financial strain.

9. Tax Benefits for Women Entrepreneurs

Women-owned MSMEs registered under Udyam can get additional tax exemptions and rebates under various state government schemes. This encourages women entrepreneurship and economic participation.

10. Exemptions from Excise Duty

Udyam-registered MSMEs manufacturing specific products can get excise duty exemptions under the Central Excise Act. This lowers production costs and makes products more competitive in the market.

How to Apply for Udyam Registration?

Applying for Udyam Registration is simple and can be done online. Follow these steps:

1. Visit the Udyam Portal: Open the official Udyam Registration portal on your browser.

2. Fill in Business Details: Enter important details like your business name, type, address, and bank account information. Ensure accuracy in the data.

3. Review and Submit the Form: Review the information to confirm it's correct. After reviewing, apply.

4. Pay the Registration Fee: Select your payment method and complete the payment for registration.

5. Receive OTP on Mobile: An OTP will be sent to the mobile number linked with your Aadhaar card.

6. Enter OTP: Input the OTP sent to your phone to verify your identity.

7. Complete Registration: Once your details are confirmed, your registration will be completed.

8. Receive Your Udyam Certificate: Once verified, your Udyam Registration certificate will be generated and sent directly to your email.

Note: Know how to retrieve your forgot udyam registration number

Conclusion

Udyam Registration provides multiple tax benefits to MSMEs, reducing their financial burden and making it easier to grow their business. From income tax exemptions and GST benefits to subsidies and lower interest rates, these advantages help MSMEs save money and reinvest in their growth.

If you own an MSME, registering under Udyam is highly beneficial. It not only provides tax relief but also opens doors to government schemes, financial aid, and business opportunities. By taking advantage of these benefits, MSMEs can achieve long-term success and contribute significantly to the economy.