Running a small or medium enterprise (SME) in India comes with many challenges, from managing cash flow to competing in crowded markets. But if your business is Udyam-registered, you have access to a host of government benefits, including income tax relief. These exemptions and deductions can reduce your financial burden and help you reinvest more into your growth.
In this article, we’ll explore the top income tax benefits available for Udyam-registered businesses and how to take full advantage of them.
What is Udyam Registration?
Udyam Registration is an official recognition granted to micro, small, and medium enterprises (MSMEs) by the Government of India through the Udyam Registration Portal. Once registered, your business gets a unique Udyam Registration Number and a government-verified certificate, which makes you eligible for various MSME schemes, including tax-related benefits.
Udyam Registration is simple, online, and easy. But the benefits — especially when it comes to taxes — are long-lasting.
MSME Classification Criteria
To qualify as an MSME for Udyam Registration, your business must meet the following limits:
- Micro: Investment ≤ ₹1 crore | Turnover ≤ ₹5 crore
- Small: Investment ≤ ₹10 crore | Turnover ≤ ₹50 crore
- Medium: Investment ≤ ₹50 crore | Turnover ≤ ₹250 crore
Why Tax Benefits Matter for MSMEs
Tax exemptions and deductions help reduce your overall tax liability, freeing up more capital for:
- Hiring staff
- Purchasing equipment
- Expanding operations
- Improving infrastructure
- Investing in marketing or technology
For small businesses, every rupee saved in tax can go a long way. That’s why understanding and using available tax benefits is crucial for long-term success.
Top Income Tax Benefits for Udyam-Registered Businesses
Let’s dive into the main income tax advantages you can enjoy as a Udyam-registered MSME in India:
1. Presumptive Taxation Scheme (Section 44AD)
If your Udyam-registered business has an annual turnover of up to ₹2 crore, you can opt for the Presumptive Taxation Scheme under Section 44AD of the Income Tax Act.
Key Benefits:
- You’re taxed on a presumed profit of 8% (or 6% for digital transactions), not actual income.
- No need to maintain detailed books of accounts.
- You don’t have to get your accounts audited.
This simplifies your compliance process and reduces both paperwork and tax liability.
2. Deduction for New Manufacturing Units (Section 80-IB)
If your Udyam-registered business is in the manufacturing sector, you may be eligible for deductions under Section 80-IB.
Benefits include:
- Tax deduction of up to 30% of profits for businesses in backward areas.
- Deduction available for up to 10 years from the start of operations.
- Incentives for businesses in industries like food processing, textiles, auto parts, and more.
This is a powerful tax-saving tool if you’re setting up a new unit or expanding your manufacturing base.
3. Reduced Corporate Tax Rates
The Government of India has reduced the corporate tax rate for MSMEs (including Udyam-registered entities):
- 22% flat tax rate (plus cess and surcharge) for domestic companies not availing any exemptions or incentives under Section 115BAA.
- 15% tax rate for new manufacturing companies registered after October 2019 under Section 115BAB.
This significantly reduces the tax burden for small businesses and startups opting for Udyam registration.
4. Interest Deduction on Business Loans (Section 36(1)(iii))
Udyam-registered businesses often qualify for easier access to collateral-free loans under MSME schemes. The interest paid on such loans is tax-deductible under Section 36(1)(iii) of the Income Tax Act.
This allows you to:
- Use borrowed capital for business growth.
- Claim the interest as an expense to lower your taxable income.
5. Depreciation Benefits on Fixed Assets (Section 32)
When your MSME buys machinery or equipment, you can claim accelerated depreciation under Section 32.
Why it matters:
- You can write off the cost of new assets quickly.
- This reduces your taxable profit, especially in the first few years of investment.
- Encourages technology upgrades and capital formation.
This is especially useful for small manufacturers and production units registered under Udyam.
6. Startup Tax Exemptions (Section 80-IAC)
If your MSME is also recognized as a startup by the Department for Promotion of Industry and Internal Trade (DPIIT), and you’re Udyam-registered, you may qualify for:
- 100% tax exemption on profits for any 3 consecutive years out of the first 10 years under Section 80-IAC.
- Exemption from angel tax for eligible startups.
Combining Udyam benefits with startup recognition can be a game-changer for tax planning.
7. Tax Deduction on R&D Expenses (Section 35)
If your Udyam-registered MSME is involved in innovation or product development, you can claim tax deductions for:
- Scientific research
- In-house R&D facility
- Payments to approved research institutions
Section 35 allows you to deduct up to 150% of actual R&D expenses in some cases. This promotes long-term innovation while saving taxes.
8. Carrying Forward Business Losses (Section 72)
Udyam-registered MSMEs are allowed to carry forward business losses for up to 8 years and set them off against future profits. This helps small businesses that:
- Face losses in the early years
- Take time to become profitable
- Need breathing room to stabilize
It’s a smart tax provision that supports long-term sustainability.
9. Section 80JJAA – Deduction for Hiring New Employees
Under Section 80JJAA, if your business hires additional employees, you can claim:
- A deduction of 30% of the salary paid to new employees for 3 assessment years.
This encourages employment generation while giving you extra tax benefits. Udyam-registered businesses in growth mode should take full advantage of this.
Note: You can also Download Udyam Certificate from our website
Conclusion
If you’re running a small business, Udyam Registration is more than just compliance—it’s your gateway to savings and support. From easier loans to income tax exemptions, the benefits are real and significant.
The Indian government has built a system that encourages MSME growth through practical tax reliefs. But to make the most of it, you need to be proactive — register your business, stay compliant, and take advantage of the exemptions available.
Less tax = more growth. That’s the Udyam advantage.
