MSME Definition 2025: Investment and Turnover Criteria.
Author: Editorial Team | in, Updated on: March 24, 2025
Overview : This blog post is a detailed guide to understanding what Micro, Small, and Medium Enterprises (MSMEs) are in India, with information updated for 2025. In it, you'll find the latest investment and turnover criteria for classifying MSMEs and a look at how these definitions have changed over time. Whether you're an entrepreneur, a business owner, or just curious about the MSME landscape in India, this guide will help you understand the current regulations and standards in a straightforward way.
MSME Definition and Criteria Effective 1st April 2025
In the Union Budget announced on February 1, 2025, Finance Minister Nirmala Sitharaman introduced significant revisions to the classification criteria for Micro, Small, and Medium Enterprises (MSMEs) in India. Investment and turnover thresholds have been increased better to accommodate the growth and expansion of these enterprises. The new 2025-26 definition will take effect from April 1st 2025.
Revised MSME Classification Criteria (2025)
| No. | Enterprises Type | Investment in plant and machinery or equipment | Turnover During the Previous FY |
|---|---|---|---|
| 1 | Micro Enterprises | ₹2.5 crore | ₹10 crore |
| 2 | Small Enterprises | ₹25 crore | ₹100 crore |
| 3 | Medium Enterprises | ₹125 crore | ₹500 crore |
These adjustments represent a 2.5 times increase in the investment limits and a 2 times increase in the turnover limits compared to the previous criteria established in 2020. The MSME classification is based on the 'either/or' criterion, meaning an enterprise qualifies for a specific category by meeting either the investment or turnover threshold. It is essential for MSMEs to regularly review their investment and turnover figures to ensure they remain within their designated category. Any change in these criteria necessitates an update to the MSME registration on the Udyam Registration Portal.
Previous MSME Classification Criteria
The Indian government introduced the following MSME definition on 1st July 2020 under the Atmanirbhar Package to increase the number of enterprises eligible to be classified as micro, small, and medium enterprises. For this purpose, the MSMEs threshold limits of investment and turnovers have been raised higher and extended to both goods-based and service-based businesses. Besides, the calculation method of investments and turnovers has also been altered to introduce two new concepts: net investments and net turnover.
MSME Classification Criteria (1 July 2020 to 31 March 2025)
| No. | Enterprises Type | Investment in INR | Turnover in INR |
|---|---|---|---|
| 1 | Micro Enterprises | ₹1 crore | ₹5 crore |
| 2 | Small Enterprises | ₹10 crore | ₹50 crore |
| 3 | Medium Enterprises | ₹50 crore | ₹250 crore |
The reclassification aims to provide a more inclusive framework, allowing a more significant number of enterprises to benefit from MSME schemes and support mechanisms. These measures reflect the government's commitment to strengthening the MSME sector, which plays a crucial role in India's economic development by contributing significantly to employment, manufacturing output, and exports. Before digging deeper into the definition and revised limits, let’s first understand what net investment and net turnover mean!
- Net Investment: The difference between investments in pollution control, research and development, and the installation of safety devices from the total investment in plant and machinery
- Net Turnover: (Difference between export turnover and the total turnover of the MSME) These definitions are considered when classifying businesses into micro, small, and medium enterprises as per the revised limits mentioned in the table below. Note that these limits apply similarly to goods and service-based enterprises, as well as those operating in the retail, wholesale, and manufacturing sectors.
MSME Definition Prior to 1st July 2020
Before July 1, 2020, the definition and classification of MSMEs in India was based on the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The classification was different for manufacturing and service enterprises and was based solely on investment in plant and machinery or equipment. Here's the classification table:
MSME Limit for Manufacturing Enterprises before 1st July 2020
| No. | Category | Investment in Plant and Machinery |
|---|---|---|
| 1 | Micro | Up to Rs. 25 Lakh |
| 2 | Small | Above Rs. 25 Lakh to Rs. 5 Crore |
| 3 | Medium | Above Rs. 5 Crore to Rs. 10 Crore |
MSME Limit for Service Enterprises before 1st July 2020
| No. | Category | Investment in Equipment |
|---|---|---|
| 1 | Micro | Up to Rs. 10 Lakh |
| 2 | Small | Above Rs. 10 Lakh to Rs. 2 Crore |
| 3 | Medium | Above Rs. 2 Crore to Rs. 5 Crore |
This classification was based solely on investment limits and did not consider turnover. The distinction between manufacturing and service enterprises was a key feature of this older definition.
Author Bio
Editorial Team | in
Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.