The Cabinet today approved amendments to a law to change the criteria for classifying MSMEs from investment in plant and machinery to annual turnover.

The proposed amendments to the Micro, Small and Medium Enterprises Development Act, 2006 were approved by the Cabinet chaired by Prime Minister Narendra Modi, an official statement said.

These changes will be incorporated in a new bill and the earlier amendement bill pending in the Lok Sabha will be withdrawn.

As per the proposed classifications, enterprises having annual turnover less than Rs 5 crore will fall under the 'micro' category.

Units having turnover between Rs 5 crore to Rs 75 crore will be classified as small enterprises, whereas those having turnover between Rs 75 crore and Rs 250 crore will be classified as enterprises, the release said.

"The move will encourage ease of doing business, make the norms of classification growth-oriented and align classification norms to the new tax regime revolving around GST," the government said.

Taking turnover as a criterion can be pegged with reliable figures available in GST Network and other methods of ascertaining which will help in having a non discretionary, transparent and objective criteria and will eliminate the need for inspections, it added.

"In addition the amendment will provide flexibility to the government to fine-tune the classification of MSMEs in response to changing economic scenario without resorting to the amendment of MSMED (Micro, Small & Medium Enterprises Development) Act," the release said.