Understanding MSME Sector in India: Tax Benefits & Compliance
The MSME sector in India contributes over 30.1% to the GDP, 35.4% of manufacturing output, and nearly 46% of exports. With over 6.3 crore units, MSMEs are the backbone of India’s economy. But many entrepreneurs struggle to navigate the tax benefits, income tax rules, and GST compliance applicable to them.
This blog simplifies the tax side of running a small business in India — whether you’re a micro-unit or a mid-sized manufacturing firm.
Who qualifies as an MSME in India?
As per the revised MSME classification under the MSMED Act, effective from 1st July 2020:
| Type | Investment in Plant & Machinery/Equipment | Annual Turnover |
|---|---|---|
| Micro | Up to ₹1 crore | Up to ₹5 crore |
| Small | Up to ₹10 crore | Up to ₹50 crore |
| Medium | Up to ₹50 crore | Up to ₹250 crore |
✅ MSME registration is optional, but mandatory if you want to avail subsidies, tax benefits, or government tenders.
Key Tax Benefits for MSMEs
Here’s what Indian MSMEs can claim under the Income Tax Act and GST law:
1. Presumptive Taxation under Section 44AD/44ADA
- Applicable to micro/small businesses (turnover up to ₹3 crore from FY 2023–24 onwards)
- Tax @6% (digital receipts) or 8% (cash receipts) of gross turnover
- Professionals can opt for 50% presumptive income under Sec 44ADA (limit: ₹75 lakh)
2. Lower Corporate Tax Rate (for Companies)
- MSME companies (turnover < ₹400 crore) taxed at 25% (plus surcharge & cess)
- No MAT applicable if opting for Section 115BAA new regime
3. Section 80JJAA – New Employee Hiring
- Deduction of 30% of additional employee cost for 3 years
- Useful for MSMEs hiring first-time employees
4. GST Composition Scheme
- Available if turnover is up to ₹1.5 crore (₹75 lakh in special category states)
- Quarterly return filing, tax @1% (traders), 2% (manufacturers), 5% (restaurants)
- No ITC allowed, but compliance is simplified
MSME Tax Compliance Checklist for FY 2024–25
| Area | Requirement |
|---|---|
| PAN & TAN | Mandatory for TDS compliance |
| ITR Filing | ITR-4 (presumptive) or ITR-3 (regular) by due date |
| GST Filing | Monthly/quarterly GSTR-1, GSTR-3B or CMP-08 (if comp.) |
| TDS Payment | Deduct & pay TDS under Sec 194C, 194J, etc. |
| UDYAM Registration | Voluntary but useful for benefits |
| Books of Accounts | Mandatory if turnover > ₹25 lakh (Section 44AA) |
Latest Government Support for MSMEs (2025)
As per the Ministry of MSME and Budget 2024–25:
- Credit Guarantee Scheme revamped with ₹9,000 crore infusion
- Emergency Credit Line Guarantee Scheme (ECLGS) extended for stressed MSMEs
- PM Vishwakarma Scheme for artisans and micro-entrepreneurs
- Mandatory e-invoicing only if turnover exceeds ₹5 crore
Visit MSME.gov.in for official updates
Expert View: Common Mistakes MSMEs Make
“Most MSMEs ignore proper GST invoicing and fail to deduct TDS on contractor payments, which leads to penalties during scrutiny. Use automated tools or consult a CA early.”
— CA Ankit G., Tax Consultant
MSME sector in India: Frequently Asked Questions
Q1. Can MSMEs file ITR under presumptive taxation every year?
Yes, but if they opt out once, they cannot re-enter for five years (Section 44AD).
Q2. Is UDYAM registration mandatory for GST exemption?
No. But it’s needed for bank loans, subsidies, and certain tenders.
Q3. What GST benefits do MSMEs get?
They can opt for Composition Scheme or quarterly return filing under QRMP.
Q4. Are MSME audits mandatory?
Only if turnover exceeds ₹1 crore (business) or ₹50 lakh (profession) — unless under presumptive scheme.
Summary
MSME sector in India contributes 30.1% to GDP and gets tax benefits under Sections 44AD, 80JJAA, and GST Composition Scheme. Know compliance rules, ITR forms, and eligibility.
Final Word: MSMEs deserve better support — don’t miss the benefits
Running a small business is tough enough — don’t lose out on legal tax benefits due to lack of awareness. From presumptive taxation to GST reliefs, MSMEs have several options to reduce their tax burden.
Need help filing your MSME ITR or managing GST?
Efiletax can simplify it all — register, file, and grow with expert support.