Micro, Small, and Medium Enterprises (MSMEs) constitute the majority of businesses globally, generating more jobs and contributing significantly to the global economy. In India, the MSME sector is highly dynamic, with over 60 million units, employing over 30 million people, and accounting for 28 per cent of GDP and 40 per cent of exports.

Gujarat hosts over 850,000MSMEs, making it one of India's most industrialised states with the highest contribution to national manufacturing output. To boost investment in MSMEs, the Government of Gujarat has introduced the Aatmanirbhar Gujarat Scheme for MSMEs ("the Scheme"), operational from October 5, 2022, to October 4, 2027.

The Scheme primarily focuses on assisting MSMEs engaged in Eligible Services Activities listed in Annexure A, emphasising sectors that generate employment opportunities. Incentives under the Scheme are location-based, encouraging operations setup across Gujarat, excluding areas falling under the municipal corporation limits of large cities.

Who are MSMEs under the scheme?
*as per policy MSME definition is not linked with turnover

Enterprises must have obtained acknowledgement or registration from the ministry of MSME.

Who are New Enterprises and Existing Enterprises under the scheme?
New enterprises are those enterprises that have commenced commercial production or rendering of services during the operative period of the scheme. New enterprises should have separately identifiable fixed capital investment.

Existing enterprises are those enterprises that are in production or are rendering services before initiating expansion or diversification.

What is Expansion and Diversification?
Expansion: Existing enterprises who are fulfilling all the following criteria is considered as expanding their operations:

What is Eligible fixed capital investment?
Eligible fixed capital investment (eFCI) includes investments in building, plant and machinery, utilities, tools, equipment, and other assets (excluding land) required for manufacturing or service provision. Investments made from October 5, 2022, onwards, up to 12 months from the date of commencement of production, are considered eFCI.

Key incentives include EPF reimbursement for new employees, capital investment subsidy for micro-enterprises, and various other benefits such as electricity duty exemption, quality certification assistance, and technology acquisition assistance.

What are the Major Incentives under the Scheme?

1. Interest Subsidy:
Interest Subsidy would be available to Manufacturing & Service Enterprises* located in Category 1, Category 2 and Category 3 talukas in Gujarat and commencing commercial operation during operative period of policy. Interest Subsidy would be available to Manufacturing and Services Enterprises as tabulated below:

Note: Only new MSME service sectors (as mentioned in the policy) will be eligible for Interest Subsidy on term loan on new machinery, equipment and furniture or fixtures (except land & building).

2. Net SGST Reimbursement:
Net SGST Reimbursement would be available to only Manufacturing Enterprises located in Category 1, Category 2 and Category 3 talukas in Gujarat and commencing commercial operation during operative period of policy. Enterprises would be eligible for reimbursement of net SGST subject to following ceiling:

3. Employers Provident Fund (EPF) Reimbursement:
MSMEs commencing commercial operation during operative period of scheme shall be eligible to claim reimbursement of employer’s contribution for their New employees* working in Gujarat for a period of 10 years.

The reimbursement shall be made subject to following ceiling limit:

4. Capital Investment Subsidy for Micro Enterprises:

Capital Investment Subsidy available to Micro Manufacturing Enterprises located in Category 1, Category 2 and Category 3 talukas. Capital Investment Subsidy would be available as per below limit:

Other Incentives such as Electricity Duty (ED) Exemption, Quality Certification Assistance, Technology Acquisition Assistance, Patent Registration Assistance, ZED Certification Assistance, Rent Assistance, ERP Assistance, Information & Technology Assistance and Power Charges Assistance are also available under this scheme subject to fulfillment of conditions as per scheme.

In this scenario, following tentative incentives would be available –

Interest subsidy is applicable only for projects financed by banks or financial institutions, while net SGST reimbursement is contingent upon intra-state sales within Gujarat. EPF reimbursement is available for employees without a Universal Account Number (UAN) prior to joining the entity.

MSMEs considering Gujarat for business setup or expansion or diversification can leverage these incentives, potentially recovering approximately 72 per cent of their costs. The Government of Gujarat aims to boost MSME investments, to fortify Gujarat's ecosystem, and contribute to the larger vision of Aatmanirbhar Gujarat for Aatmanirbhar Bharat.

(Views expressed above are personal)

About the authors:

Saumil Soni is the Consultant (Tax and Regulatory), Indirect Tax, at Ernst and Young LLP India.
Jaideep Jain is the Consultant (Tax and Regulatory), Indirect Tax, at Ernst and Young LLP India.