Revision of MSME Classification

By Lucratus CFO Services Pvt Ltd

March 24, 2025

Revision of MSME Classification

Section 43B of the Income Tax Act, 1961, outlines specific expenses that can only be claimed as deductions on an actual payment basis. One of the latest additions to this section is Clause (h), introduced by the Finance Act, 2023, which focuses on payments to Micro and Small Enterprises (MSEs) under the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006.

Section 43B(h) states that any amount payable by an assessee to a Micro or Small Enterprise for the supply of goods or services shall be allowed as a deduction only in the year of actual payment. This provision ensures that businesses settle their dues to MSEs in a timely manner, supporting their financial stability.

Revision of MSME Classification Criteria:

The Union Budget 2025-26 introduced significant revisions to the classification criteria for Micro, Small, and Medium Enterprises (MSMEs) in India, aiming to foster growth, enhance competitiveness, and streamline regulatory processes.​

The investment and turnover thresholds for MSMEs have been substantially increased, allowing more enterprises to benefit from MSME-specific schemes and incentives. The updated criteria are as follows:​

Implication of the Revised Criteria

Revised criteria is effective from 1^st April’2025. Hence, w.e.f. 1^st April’2025 more enterprises will be classified as Micro and Small enterprises. The enterprises whose Investments between ₹10 crore to ₹25 crore and Turnover between ₹50 crore to ₹100 crore not classified as Micro and Medium enterprise will be classified as Micro and Medium enterprise w.e.f 1^st April’2025. As a result to claim deduction for supply to these enterprises payments have to be made within stipulated time.

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