Revised MSME Classification: New Turnover & Investment Criteria Explained (2025)

Table of contents:

• What is an MSME?
• Why Did the MSME Classification Change?
• The New MSME Classification (2025 Update)
• MSME Benefits Under the New Classification
• How to Register as an MSME (Udyam Registration Guide)
• Challenges & Future Outlook for MSMEs
• FAQs on MSME Classification

Micro, Small, and Medium Enterprises (MSMEs) play a vital role in India’s economic growth. They contribute significantly to GDP, employment, and exports. Over the years, the definition of MSMEs has evolved to accommodate business expansion, technological advancements, and market dynamics.

We have a separate article explaining – MSME full form: What is MSME? Meaning, features, eligibility and more

Why did the MSME Classification Change?

2020 was a difficult year for businesses across the globe. For emerging and small businesses, the situation was critical, and many went out of business. With the aim to increase the number of businesses that could benefit from the aid and support the government offered, the definition of MSME was revised with new additions to the list of MSME businesses in India. 

The old definition of MSME applied to businesses in manufacturing (i.e., goods production in any industry) and services (i.e., providing services) and was based on the investment made by the firm in the plant and machinery. This naturally raised many questions particularly because there were differences in the definition of investments made for manufacturing and service-based businesses.  

This led to many businesses restricting growth and scaling slowly to avoid losing the MSME tag and the benefits it offered. 

However, under the Aatmanirbhar Bharat Abhiyan, (1 June, 2020 notification) the ministry revised the definition of MSMEs. The new classification of MSMEs in India now focused on turnover instead of investments only and is be based on: 

• Annual turnover generated 
• Investment made in plant and machinery and equipment 

Moreover, this is a composite definition and will apply to all businesses across manufacturing and services sector to bring parity. 

Additionally, Udyam Registration was introduced as a simplified, single-window platform for MSME registration, enabling businesses to avail themselves of exclusive benefits, including financial aid, tax exemptions, and loan schemes.

The New MSME Classification (2025 Update)

As per the latest classification (effective July 1, 2020, and further refined in 2025), MSMEs are categorized based on both investment in plant/machinery/equipment and annual turnover:

The earlier classification was – 

This composite classification ensures uniformity across both manufacturing and service sectors.

MSME Benefits Under the New Classification

1. Access to Government Schemes: MSMEs can benefit from priority sector lending, tax incentives, and exclusive subsidies.
2. Udyam Registration Perks: Registered MSMEs enjoy collateral-free loans, lower interest rates, and easier access to funding.
3. Market and Technology Support: The revised framework allows for better growth opportunities, increased competitiveness, and access to international markets.

To avail these benefits, you should be registered on Udyam portal as per new classification. To register yourself, navigate this for a step-to-step registration process – MSME registration: Online process, fees, eligibility, documents.

Old Update to the MSME categorisation: July, 2021 

In 2021, there was further update made to the meaning of MSMEs – this time to include retailers and wholesale traders under MSMEs. This change allows almost 2.5 crore retailers and wholesale traders to now register as MSMEs on Udyam and avail priority sector lending benefits as per RBI guidelines. 

Wholesale traders and retailers were among the many greatly affected by the impact of the pandemic. Owning to the nature of their business they faced severe shortage in liquidity and funds during the lockdown period, losing to online businesses, and global players. This not only affected their business but also impacted the economic situation.  

To enable them to recover from their losses and keep businesses afloat, the ministry decided to include them under the definition of MSMEs and extend specific financial support to them as well (primarily priority sector lending).  

On July, 2021, a new definition of MSME was announced that included retailers and wholesale traders to the list of Indian MSMEs.

Challenges & Future Outlook for MSMEs

Some of the common challenges are:

• Compliance requirements and documentation can be overwhelming for small businesses.
• Many MSMEs struggle with financial literacy and technology adoption.
• Market competition from large enterprises and international firms remains a concern.

MSME sector has grown up like never before and its future outlook seems promising as:

• Government initiatives continue to support MSMEs through increased loan schemes and policy enhancements.
• Digital transformation and e-commerce integration provide new growth avenues.
• The inclusion of retailers and wholesale traders in MSME classification expands the sector’s reach.

Conclusion

The revised MSME classification in India reflects a progressive shift towards a turnover-based definition, offering greater clarity and enabling businesses to scale without losing benefits. With initiatives like Udyam Registration, MSMEs can leverage government schemes, financial support, and better market access. As the sector continues to evolve, businesses must stay updated with policies to maximize growth opportunities.

FAQs

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References:

• Ministry of MSME: msme.gov.in
• Press Information Bureau (PIB): pib.gov.in