Everything MSMEs Need To Know About GST

MSMEs are the backbone of the Indian economy, therefore, the need to assist them to operate seamlessly and efficiently is important. Read to know everything about gst here!

21 Nov,2022 10:58 IST 3570
Everything MSMEs Need To Know About GST

Micro, small and medium enterprises (MSMEs) are key to the Indian economy. These businesses employ a majority of the country’s workforce and operate in both the manufacturing and services sectors.

Ever since India introduced the Goods and Services Tax (GST) in 2017, there has been a lot of confusion around its implementation and the impact it has had on the MSMEs. Having said that, over the past few years as the MSME sector has grown in India, its contribution to the GST kitty has also been growing significantly.

But first, what exactly is an MSME? According to the MSME Act of 2006, there are two types of MSMEs—manufacturing units, which produce physical goods, and services MSMEs, which provide services like education, transport, and logistics.

Manufacturing and Services MSMEs

• A micro enterprise is one where the cost of equipment is up to Rs 10 lakh in the case of service MSMEs and Rs 25 lakh in the case of manufacturing MSMEs.
• A small enterprise is one where the investment into the equipment is between Rs 10 lakh and Rs 2 crore in the case of service MSMEs and between Rs 25 lakh and Rs 5 crore for manufacturing MSMEs.
• A medium enterprise is one where between Rs 5 crore and Rs 10 crore has been invested for manufacturing MSMEs and between Rs 2 crore and Rs 5 crore for services MSMEs.

Applying For A GST Number

Before a company can begin commercial operations, it must apply for a GST Number (GSTN). This unique number is used in every business transaction and is used while paying or collecting the GST. To get a GSTN, an MSME will have to register on the GST portal. The following documents need to be submitted for getting a GSTN:

• Aadhaar card of the owner
• Address and address proof of the business
• Business incorporation certificate
• Service Tax/ VAT/ CST/ Excise Registration details
• PAN card details of the owner
• Bank account details of the business
• Any other documents that may be specified

The current system has its pitfalls when it comes to MSMEs. For one, digitising the whole system was a pain for most MSMEs. Second, the registration process involved additional costs that had to be borne by the MSMEs. Third, these costs went up further as employees had to be trained on the new system.

Having said all of this, both MSMEs and the GST regime can be very beneficial for each other.

One Nation, One Tax:

Instead of multiple indirect taxes like VAT and service tax, the MSMEs only have to pay the GST.

Lower Tax Burden:

Instead of paying an integrated state and central tax as high as 32%, the highest GST tax slab is now 28%, which means a lower tax burden on the MSME. This, in turn, means a lower cost of production that can be passed on to the customer and can also boost margins.

Easier To Expand To New States:

With the new GST regime, small businesses can now hope to expand their sales across India as they do not have to bother about local taxes across each of the states where they operate.

Easier Registration:

Instead of having to register for different tax systems, companies now only need to register once. This makes the entire process very easy to manage.


As is evident, the GST regime has simplified the indirect tax system for the MSME sector to a great extent. However, some issues still need to be ironed out, and if the government and the industry can get their act together, the process of complying with the country’s indirect tax laws can become even simpler for small business owners.

Moreover, a simplified structure will eventually lead to tax discipline and boost economic growth.

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