Micro, Small and Medium Enterprises (MSMEs) is a concept and a legal classification defined by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The Act, which came into effect on October 2, 2006, created a unified legal framework for enterprises in both the manufacturing and service sectors. Its origin solved the problem of a fragmented support system by formally recognizing the Medium Enterprise category for the first time, which was not covered under the earlier Small Scale Industries (SSI) framework.
The mechanism for classification is based on a composite criteria of investment in plant and machinery/equipment and annual turnover. This classification was significantly revised in 2020 to remove the distinction between manufacturing and service enterprises. A further major amendment was formalized by a notification on March 21, 2025, effective from April 1, 2025, which increased the investment limits by 2.5 times and turnover limits by 2 times. Under the revised criteria, a Micro Enterprise has an investment up to ₹2.5 Crore and turnover up to ₹10 Crore.
The sector is governed by the Ministry of Micro, Small and Medium Enterprises. Registration is done through the Udyam Registration portal, which replaced the earlier Udyog Aadhaar system in July 2020. A key provision of the MSMED Act, 2006 is the protection against delayed payments, which mandates buyers to pay MSMEs within 45 days (or 15 days if no agreement exists). Failure to pay makes the buyer liable for compound interest at three times the RBI bank rate. This provision is further strengthened by its connection to Section 43B(h) of the Income Tax Act, which disallows a tax deduction for buyers on payments not made within the stipulated time.