Guides · MSME
MSME classification criteria
An MSME is classified as micro, small, or medium based on two things: investment in plant and machinery or equipment, and annual turnover. The classification decides which protections and schemes a business can use.
The two-limb test
Classification uses a combined test of investment and turnover. A micro enterprise sits at the lowest limits — up to ₹1 crore investment and ₹5 crore turnover. A small enterprise sits higher — up to ₹10 crore investment and ₹50 crore turnover. A medium enterprise sits higher still.
An enterprise is classified at the higher category if it crosses either limit for its band, so both investment and turnover have to stay within a band's limits to remain in it.
Why the classification matters
The delayed-payment protections of the MSMED Act, and the Section 43B(h) income-tax consequence for late payment, apply to micro and small enterprises — not medium ones. So whether a supplier is micro, small, or medium changes what a late-paying buyer faces.
Companies do carry a separate disclosure duty for dues to medium enterprises through MSME Form 1, but the interest and tax teeth of the 45-day rule are for micro and small suppliers.
How Lekha applies it
Lekha's 45-day clock is meaningful where a supplier is a registered micro or small enterprise, so the classification is what makes the overdue signal relevant.
Lekha records what your documents say and tracks the money on both sides — what you owe and what you are owed. It records and tracks; it does not replace your accountant.
Questions
- How are MSMEs classified?
- By a combined test of investment in plant and machinery or equipment and annual turnover: micro up to ₹1 crore and ₹5 crore, small up to ₹10 crore and ₹50 crore, and medium higher still.
- Does the 45-day rule apply to medium enterprises?
- The Section 15 and 16 protections and the Section 43B(h) income-tax consequence apply to micro and small enterprises, not medium ones.
- What if a business crosses one limit but not the other?
- An enterprise moves to the higher category if it crosses either the investment or the turnover limit for its band.
This guide is general information, not legal or tax advice. Confirm the current rules and your own circumstances for any specific case.