MSMED Act – Complete Guide to MSME Benefits, Registration & Legal Protection

Key takeaways:

• The Micro, Small and Medium Enterprises Development Act was enacted on 16 June 2006.
   
• This Act was the first one for recognition of the concept of the enterprises.
   
• It is always recommended to register your enterprise as a micro, small or medium enterprise.

Bonus tip: 

The Finance Minister on 23 August 2019 has announced measures to allow GSTN to partner with the TReDS.  TReDS is a platform made for MSMEs to sell their trade receivables.

The MSMED Act, 2006 was enacted to protect and promote small scale businesses in India. 

MSMED Act, 2006 is like a safety net for the small business owners. Large size businesses have a strong market base whereas small businesses can be pushed away easily. The MSMED Act makes sure that these small businesses are not exploited or ignored.

For example: You own a small business and you sent goods worth ₹5,00,000 to a big business. The payment terms were 30 days but the owner delayed it for 3 months. In this case, you can avail legal help and ask for interest on the delayed payment. MSME provides support to the small businesses to get their payment timely and fairly. 

What is the MSMED Act, 2006?

The MSMED Act of 2006 was enacted to protect and promote micro, small and medium scaled businesses in India. It helps them to grow in the market and get fair payments. The MSME are divided into two groups:

1- Manufacturing enterprises: it includes companies that manufacture goods for other industries.

2- Service enterprises: it includes companies that provide any kind of services. 

This Act was the first legal framework to promote and protect the micro, small and medium size businesses. 

What is the main objective of the MSMED Act, 2006?

The main objective of the MSMED Act of 2006 is that :

• the small, micro and medium scaled businesses should have legal meanings. 
• They should be encouraged to grow and develop.
• They should boost their competitiveness by making a forum along with all the interested parties to review policies and offer suggestions. 

Who is covered under the MSMED Act, 2006?

All businesses including proprietorships, Hindu undivided families, Association of families, Partnership firms, companies can apply for MSME registration. 

Any person who is willing to create a micro, small or medium scaled business can also apply for the registration by doing the necessary paperwork. The application needs to be submitted to the authority designated by the Central Government under sub section 4 of the MSMED Act. 

What are the benefits of MSMED Act, 2006?

The micro, small and medium size businesses have plenty of benefits after doing  registration under the Act. Some of them are listed below: 

These all benefits are provided to encourage the small businesses to grow and develop in the market. 

What are the latest amendments made to MSMED Act 2006?

The Union Budget 2025-26 introduced a number of measures to encourage the micro, medium and small enterprises sector. Following are some latest amendments made to the Act: 

1- The investment and turnover limits for classification have been increased by 2.5 times and 2 times to scale operations and access better resources. 

2- The credit guarantee cover for micro and small enterprises has been increased from ₹5,00,00,000 to ₹10,00,00,000. 

3- loans limit has been increased to ₹20,00,00,000 with enhanced guarantee cover. 

4- A new credit card scheme will provide ₹5,00,000 in credit to micro enterprises registered on Udyam portal.

There are many more measures introduced by the Government of India considering the fact that these enterprises play an important role in society. 

Conclusion: 

Overall, the growth and development of micro, small and medium scaled businesses is an important part of our society. To encourage this, the first ever legal framework was enacted on 16 June 2006 named as the MSMED Act. 

FAQs:

1- What are the government schemes that can support starting a MSME? 

There are many government schemes designed to support the growth of MSME. Some of them are  Pradhan Mantri Mudra Yojana, Prime Minister’s Employment Generation Programme, Stand up India scheme, Credit Linked Capital Subsidy Scheme. 

2- How to apply for the government schemes made for MSMEs?

Before applying for any scheme, register on Udyam Registration portal https://www.udyamregistration.in. Choose the right scheme according to your business and submit the required documents along the bank details verification. 

3- What was the main aim of the government when they passed the MSMED Act, 2006?

The MSMED Act, 2006 was passed with an intent to promote and protect micro, small and medium size businesses. They should get fair and timely payments. 

4- What is the full form of MSMED in the Act?

MSMED stands for micro, small and medium enterprises development. 

5- Is MSME registration mandatory under the MSMED Act?

No, the MSME registration is not necessary under the MSMED Act but to avail benefits of different schemes offered by the government, the enterprise needs to be registered.