MSME Definition Expanded: Government Enhances Investment and Turnover Limits

The Ministry of Micro, Small, and Medium Enterprises (MSME) has issued a Notification (S.O. 1364(E)) dated March 21, 2025, amending the threshold limits for classifying enterprises under the MSME Development Act, 2006

This update follows the announcement made in the Union Budget 2025–26, where Finance Minister Nirmala Sitharaman proposed an enhancement of the investment and turnover limits of classification of MSMEs by 2.5 times and 2 times, respectively.

With effect from April 1, 2025, the Investment and Turnover Limits for classification as MSMEs stand revised as follows:

This notification modifies the classification framework set forth in Notification (S.O. 2119(E)), dated June 26, 2020. The 2020 framework had marked a major shift by introducing a composite criterion based on both investment and turnover for classifying micro, small, and medium enterprises; replacing the prior system that considered only investment in plant and machinery or equipment. It also eliminated the distinction between manufacturing and service enterprises, establishing a unified classification approach across sectors.

This Notification further enhances the investment and turnover limits, allowing a greater number of businesses to qualify as MSMEs and avail government benefits, priority lending, and other incentives.

The increase in investment and turnover limits for MSMEs is a crucial step that aims to accommodate inflation and changing economic conditions. With these revised criteria, a significantly larger number of enterprises will now qualify as MSMEs and gain access to various government incentives and support mechanisms.

• Expanded Eligibility for MSME Benefits: More businesses can now avail priority sector lending, tax incentives, subsidies, lower interest rates on loans, and easier access to credit.
• Boosts Competitiveness and Market Expansion: By aligning with evolving market conditions, the revised classification supports MSMEs in enhancing productivity, adopting new technologies, and expanding their reach in both domestic and international markets.
• Broader MSME Coverage Enhances Legal Safeguards for Payment Recovery: More enterprises will now fall under the MSME framework, enabling them to leverage statutory protections for timely payments. In case of delayed payments, buyers are liable to pay compound interest at a penal rate, and MSMEs can approach Facilitation Councils for speedy dispute resolution through conciliation or arbitration—ensuring quicker recovery of dues and improved cash flow.
• Strengthens the MSME Ecosystem: The changes contribute to a more resilient and dynamic MSME sector, fostering job creation, innovation, and economic development across industries.
• Increases Government Support for a Larger Business Base: With more enterprises now eligible under the MSME category, a wider section of businesses will benefit from government-backed initiatives, grants, and special financial assistance programs.

As highlighted in the Union Budget 2025–26, over 1 crore registered MSMEs collectively employ 7.5 crore individuals, contribute 36% to India’s manufacturing output, and account for 45% of the country’s exports. The revised classification thresholds are expected to further enhance operational scale, encourage technological adoption, and improve access to capital, strengthening India’s position as a global manufacturing and export hub.

We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

Dinesh Pednekar, Partner, Email,  DineshPednekar@elp-in.com

Suyesha Kakarla, Associate, Email – SuyeshaKakarla@elp-in.com

Mihir Rathod, Associate, Email – MihirRathod@elp-in.com