Paragraph 1 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Paragraph 1 of S.O. 2119(E), dated 26 June 2020 and effective 1 July 2020, says an enterprise is classified as micro, small or medium on the basis of two tests together: investment in plant and machinery or equipment, and turnover. It is the only paragraph of that notification that S.O. 1364(E) of 2025 changed, and it did so by replacing the figures.
Paragraph 1 has three clauses, one each for micro, small and medium enterprises. Each clause has an investment ceiling and a turnover ceiling, and both must be met. The 2020 figures were Rs 1 crore and Rs 5 crore, Rs 10 crore and Rs 50 crore, and Rs 50 crore and Rs 250 crore. The current figures come from S.O. 1364(E), in force from 1 April 2025: Rs 2.5 crore and Rs 10 crore, Rs 25 crore and Rs 100 crore, and Rs 125 crore and Rs 500 crore.
Where paragraph 1 comes from
S.O. 2119(E) is a notification of the Ministry of Micro, Small and Medium Enterprises, issued under section 7(1) read with section 7(9) and section 8(2) read with section 8(3) of the MSMED Act, 2006, "after obtaining the recommendations of the Advisory Committee". It supersedes earlier notifications on the subject, the latest dated 1 June 2020 and the earliest dated 5 October 2006, "except as respects things done or omitted to be done before such supersession". This is delegated legislation: the Act's own section 7(1) figures are the original 2006 ones, and section 7(9) is what lets the Central Government change the criteria. For that background, see our posts on section 7(1) and section 7(9).
What paragraph 1 says
The opening words are: "An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria". Each category is defined by "the investment in plant and machinery or equipment" and "turnover", joined by "and".
| Category | Investment in plant and machinery or equipment (does not exceed) | Turnover (does not exceed) |
|---|---|---|
| Micro, as in 2020 | Rs 1 crore | Rs 5 crore |
| Small, as in 2020 | Rs 10 crore | Rs 50 crore |
| Medium, as in 2020 | Rs 50 crore | Rs 250 crore |
| Micro, current | Rs 2.5 crore | Rs 10 crore |
| Small, current | Rs 25 crore | Rs 100 crore |
| Medium, current | Rs 125 crore | Rs 500 crore |
The current rows are as substituted by S.O. 1364(E) with effect from 1 April 2025. The 2020 rows are shown only for history. Do not use them for a present-day classification. Our Udyam registration team can check which category an enterprise falls in on its figures; see Udyam registration.
What has changed since the Act
| Stage | Test | Who it applied to |
|---|---|---|
| Act of 2006, s.7(1) | Investment in plant and machinery or equipment only, with separate figures for manufacturing and service enterprises | Enterprises as defined in the Act |
| S.O. 2119(E), 2020 | Investment and turnover together, one set of figures for all enterprises | Enterprises registering on the Udyam portal |
| S.O. 1364(E), 2025 | Same two tests, higher ceilings | From 1 April 2025 |
The 2006 split between manufacturing and service enterprises does not appear in paragraph 1 of S.O. 2119(E); paragraph 1 states one set of ceilings and does not ask whether an enterprise manufactures or provides services. The 2006 text and its figures are covered in our post on section 7 of the Act.
Reading the two tests together
The words "micro enterprise, where the investment ... does not exceed ... and turnover does not exceed ..." mean both ceilings apply. Paragraph 3 then says what happens when one of them is crossed: the enterprise moves up to the next category. That consequence is explained in our post on paragraph 3. Paragraph 1 alone does not say how investment or turnover is measured. Paragraphs 4 and 5 do that, and paragraph 3(3) treats all units sharing a PAN as one enterprise.
What paragraph 1 does not say
- It does not give a separate category for manufacturing and for service enterprises.
- It does not define "plant and machinery or equipment"; paragraph 4(3) does.
- It does not define turnover; paragraph 5 explains what is excluded and where the figures come from.
- It does not say what happens to an enterprise that crosses a ceiling; see paragraph 3 and paragraph 8.
Practical examples
Example 1: a small trader. An enterprise has investment in plant and machinery or equipment of Rs 1.2 crore and turnover of Rs 8 crore. Under the 2020 figures, it exceeded the micro investment ceiling of Rs 1 crore and so was small. Under the current figures, it is within both micro ceilings (Rs 2.5 crore and Rs 10 crore) and is micro. This is an illustration of how the figures apply, not a statement about any real enterprise.
Example 2: turnover is the trigger. An enterprise has investment of Rs 2 crore and turnover of Rs 12 crore. Investment is within the micro ceiling, but turnover is above Rs 10 crore. The enterprise is not micro; it fits the small category if both its figures are within Rs 25 crore and Rs 100 crore.
Example 3: which figures apply? A classification question for a year before 1 April 2025 is answered with the 2020 figures, while one for a period after that date uses the substituted figures. Whether a particular date falls before or after 1 April 2025 needs to be checked against how the Udyam portal treats the period; paragraph 8 covers the transition, and the notification text does not say more.
Common mistakes
- Quoting the 2020 figures as current.
- Reading only the investment figure and ignoring turnover.
- Applying the 2006 Act figures from section 7(1).
- Treating manufacturing and service enterprises differently under this paragraph.
Need help with Udyam classification?
If you are unsure whether your enterprise is micro, small or medium on today's figures, our Udyam registration team can go through your investment and turnover with you and help you register or update correctly.
Key takeaways
- Paragraph 1 of S.O. 2119(E) classifies an enterprise on investment in plant and machinery or equipment and turnover together.
- The 2020 ceilings were Rs 1 crore/5 crore, Rs 10 crore/50 crore and Rs 50 crore/250 crore.
- The current ceilings, from S.O. 1364(E) effective 1 April 2025, are Rs 2.5 crore/10 crore, Rs 25 crore/100 crore and Rs 125 crore/500 crore.
- The 2006 Act figures in section 7(1) are not the current definition.
- Paragraph 1 was the only paragraph of S.O. 2119(E) amended in 2025.
Read next
- Paragraph 3 of the Udyam Notification (S.O. 2119(E)): Composite criteria of investment and turnover
- S.O. 1364(E) of 2025: Revised investment and turnover limits
- MSME Classification: Micro, Small and Medium Criteria
- MSME Classification Under S.O. 1364(E) and Udyam Registration
Disclaimer: Based on the Micro, Small and Medium Enterprises Development Act, 2006 (official text, not amended by the Jan Vishwas Acts of 2023 or 2026) and the Udyam notifications S.O. 2119(E) of 26 June 2020 and S.O. 1364(E) of 21 March 2025, read with later developments noted in the article, as on 30 September 2026. Notifications, rules and the Udyam portal change; verify the current position before acting.