Paragraph 4 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 4 of S.O. 2119(E) says how the investment figure used for classification is worked out. Broadly: it is linked to the Income Tax Returns of earlier years; a new enterprise with no return may declare it; "plant and machinery or equipment" means the Income Tax Rules, 1962 meaning plus all tangible assets other than land and building, furniture and fittings; and GST is left out of purchase value.
4(1): investment is linked to the ITR of the previous years under the Income Tax Act, 1961. 4(2): a new enterprise with no prior ITR declares it, and that relaxation ends after 31 March of the financial year in which it files its first ITR. 4(3): plant and machinery or equipment carries the Income Tax Rules, 1962 meaning and includes all tangible assets other than land and building, furniture and fittings. 4(4): purchase value is taken excluding GST, new or second hand. 4(5): items in Explanation 1 to section 7(1) are excluded.
The five sub-paragraphs at a glance
| Sub-para | What it says |
|---|---|
| 4(1) | Calculation "will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961" |
| 4(2) | New enterprise, no prior ITR: investment "based on self-declaration of the promoter"; relaxation ends after 31 March of the financial year of its first ITR |
| 4(3) | "Plant and machinery or equipment" has the meaning of plant and machinery in the Income Tax Rules, 1962, and "shall include all tangible assets (other than land and building, furniture and fittings)" |
| 4(4) | Purchase (invoice) value, first hand or second hand, "excluding Goods and Services Tax (GST)", on self-disclosure basis if the enterprise is new and has no ITR |
| 4(5) | Cost of items in Explanation I to section 7(1) of the Act excluded |
Paragraph 4(1): linked to the ITR
Investment "will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961". The notification names the 1961 Act as written. The text does not say how the link is operated on the portal, and this article does not describe portal steps. Paragraph 8(1) asks an enterprise to update its information, including the ITR details for the previous financial year, on a self-declaration basis; OCR garbles that phrase in our copy (it reads "IIR" and "GSI Return"), but paragraph 8(3) makes the sense clear: ITR and GST return. Our post on paragraph 8(1) to (3) covers updating.
Paragraph 4(2): new enterprises
Where "no prior ITR is available", investment is "based on self-declaration of the promoter of the enterprise", and "such relaxation shall end after the 31st March of the financial year in which it files its first ITR". So the self-declaration is temporary. Once the enterprise has filed its first return, the ITR-linked route in 4(1) takes over from the end of that financial year. The text does not define what "new" means beyond "no prior ITR".
Paragraph 4(3): what counts
The expression "plant and machinery or equipment" of the enterprise "shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings)".
| Included | Excluded |
|---|---|
| Plant and machinery as meant in the Income Tax Rules, 1962 | Land and building |
| All other tangible assets | Furniture and fittings |
Two cautions. First, the meaning is borrowed from the 1961 Act's rules; this article does not list which assets fall inside it. Second, the Income-tax Act, 2025 replaces the 1961 Act for later years, but the notification still speaks of the 1961 Act and the 1962 Rules, and this article quotes it as written. Whether and how the portal maps this to the new law is not stated in the notification.
Paragraph 4(4): purchase value, excluding GST
"The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR."
Read it in pieces. The measure is the invoice value. Second-hand purchases count. GST is left out. The phrase "on self-disclosure basis, if the enterprise is a new one without any ITR" ties the self-disclosure to new enterprises only. The text does not say what invoice value to use when an asset was bought without an invoice.
Paragraph 4(5): the Explanation 1 exclusions
"The cost of certain items specified in the Explanation I to sub-section (1) of section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery." Explanation 1 to section 7(1) says the cost of "pollution control, research and development, industrial safety devices and such other items as may be specified, by notification" is excluded. Our post on section 7 quotes that Explanation. The notification paragraph does not itself list any further items, and this article does not name any. If you rely on an excluded item, check that it is in the Explanation or has been notified.
Where investment sits in the classification
Investment is one of two tests; turnover is the other. See paragraph 3 for how they combine and paragraph 5 for turnover. The ceilings are in paragraph 1 as substituted by S.O. 1364(E) from 1 April 2025. If you are unsure which assets to include, our Udyam registration team can go through your fixed asset list with you.
What paragraph 4 does not say
- It does not list the assets that count as plant and machinery; it points to the Income Tax Rules, 1962.
- It does not give a value for assets bought without an invoice.
- It does not say how depreciation affects the figure.
- It does not say how the ITR link works on the portal.
Practical examples
Example 1: a new workshop. A new workshop with no ITR buys a machine for Rs 1,18,000 including GST of Rs 18,000. Under 4(4) the value taken is Rs 1,00,000, excluding GST, and it is declared by the promoter.
Example 2: land and building. The same workshop buys a shed and the land under it. Under 4(3), land and building are not part of plant and machinery or equipment, so they do not count.
Example 3: second-hand equipment. An enterprise buys a used machine. Under 4(4), the purchase value, excluding GST, counts whether bought first hand or second hand.
Need help with the investment figure?
Getting the investment figure right decides which category you land in, and a wrong declaration has consequences under paragraph 6(8). Our Udyam registration team can help you work out what to include and what to leave out.
Key takeaways
- Investment is linked to the ITR of previous years (para 4(1)); a new enterprise may self-declare until the end of the financial year of its first ITR (para 4(2)).
- Plant and machinery or equipment has the Income Tax Rules, 1962 meaning plus all tangible assets other than land and building, furniture and fittings (para 4(3)).
- Purchase value is taken excluding GST, first hand or second hand (para 4(4)).
- Explanation 1 to section 7(1) items are excluded (para 4(5)).
Read next
- Paragraph 3 of the Udyam Notification (S.O. 2119(E)): Composite criteria of investment and turnover
- Paragraph 5 of the Udyam Notification (S.O. 2119(E)): Calculation of turnover
- MSME Investment and Turnover Calculation Criteria Notified
- MSME Classification: Micro, Small and Medium Criteria
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.