Can MSMEs Be Startups? Understanding the Overlap in India

As we all know, India’s entrepreneurial ecosystem is booming. Due to this, the two terms are frequently discussed about small businesses and innovation, specifically MSMEs (Micro, Small, and Medium Enterprises) and Startups. In the economy, both play a very significant role, but many entrepreneurs remain confused about can MSMEs be startups. So here, Udyamita Helpline experts will help you to understand this.

Can an MSME Also Be Recognized As a Startup?

The answer of this question is YES – But with conditions. To understand this in detail, you must understand about the differences, overlaps, eligibility, and benefits of being recognized both as an MSME and as a startup.

MSMEs in India – Defined by Size and Scale

MSMEs (Micro, Small, and Medium Enterprises) are the backbone of India’s economy. The business contributes nearly 30% to the GDP and employs over 110 million people. The MSMEs are primarily defines by their investment in plant, machinery, or equipment and their annual turnover.

Classification of MSMEs (as per revised definition – June 2020):

• Micro Enterprise: Investment up to ₹1 crore and turnover up to ₹5 crore
• Small Enterprise: Investment up to ₹10 crore and turnover up to ₹50 crore
• Medium Enterprise: Investment up to ₹50 crore and turnover up to ₹250 crore

MSMEs operate across manufacturing, trading, and service sectors, ranging from small retail shops and local manufacturers to export-driven medium industries. Their focus is not necessarily innovation but rather stability, employment generation, and local economic development.

Startups – Innovation, Disruption, and Scalability

Startups in India are not defined on the basis of size or turnover alone. It is defined by its innovation-driven approach. The Startup India is recognized by the flagship initiative launched in 2016. A Startup is:

• A business entity that is up to 10 years old from the date of incorporation.
• A Company turnover not exceeded ₹100 crore in any financial year.
• Working towards innovation, development, or improvement of products, processes, or services.
• Having the potential to scale up and generate employment.

Thus, what differentiates a Startup from an MSME is not investment or turnover, but the ability to innovate and disrupt existing markets.

MSME vs Startup – The Key Differences

Aspect	MSME	Startup
Definition	Based on investment & turnover	Based on innovation, scalability & recognition
Age of Business	No specific limit	Must be under 10 years
Sectors	Manufacturing, services, trading	Any sector, but focus on innovating
Primary Focus	Stability, employment generation	Innovation, growth, scalability
Government Recognition	Through MSME/Udyam Registration	DPIIT Recognition under Startup India
Benefits	Credit schemes, subsidies, priority lending	Tax exemptions, funding support, regulatory relaxations

Note – The MSME focuses on what it produces and its economic size, while a startup focuses on how it innovates and whether it can be scaled rapidly.

Benefits of Startup Recognition for MSMEs

If your MSME qualifies as a Startup, you unlock dual advantages:

1. Access to Startup India Programs

• Incubation and mentorship programs
• Networking opportunities with investors
• Seed funding and venture capital support

2. Tax Incentives

• Income-tax exemption for 3 consecutive years within the first 10 years
• Exemption under Section 56(2)(viib) of IT Act (Angel Tax exemption)

3. Financial Benefits

• Access to Credit Guarantee Fund for Startups (CGFS)
• Easier fundraising through venture capitalists, angel investors, and crowdfunding

4. Regulatory Relaxations

• Self-certification and reduced compliance for labor and environmental laws
• Fast-tracked patent examination and rebates on IPR filings

5. Branding & Visibility

• Being recognized as a Startup under DPIIT enhances credibility and opens doors to government contracts, corporate partnerships, and investor confidence.

Benefits of MSME Registration (Udyam Registration)

Even without Startup recognition, MSMEs enjoy strong government support:

• Priority lending under MSME credit schemes
• Access to Mudra loans, CGTMSE (Credit Guarantee Fund Trust for MSMEs)
• Protection against delayed payments via MSME Samadhaan Scheme portal
• Subsidies for ISO certification, barcoding, and patent registration
• Reservation in government tender processes

Thus, dual registration (MSME + Startup) maximizes incentives, catering to both sustainability and innovation-driven growth.

Process for Dual Recognition – How to Register as Both MSME and Startup

Here, you will get to know about the process of registration of MSME and Startup businesses that will improve the presence of your business in the Indian marketplace.

1. MSME (Udyam) Registration

• Register on the Udyam Portal using Aadhaar/PAN number.
• Enter details of business activities, investment, and turnover.
• Obtain an instant Udyam registration certificate.

2. Startup Registration under DPIIT

• Apply via the Startup India portal.
• Upload the incorporation certificate (as Pvt Ltd, LLP, or Registered Partnership).
• Provide a pitch note on how your business is innovative.
• On approval, receive the DPIIT recognition certificate.

Tip: Startups must be legally registered as a Private Limited Company, LLP, or Partnership Firm; proprietorships and traditional partnerships don’t qualify.

Challenges in Dual Recognition

While dual recognition offers benefits, entrepreneurs should be mindful of:

• Documentation requirements – Startup India recognition requires demonstrating innovation, not just turnover.
• Compliance overlap – Maintaining separate compliance for MSME and Startup schemes.
• Scalability test – Not every MSME can genuinely justify being a Startup.

Future Outlook – MSMEs & Startups as Growth Engines

• India aims to have 50 million MSMEs digitally enabled in the coming years, alongside over 100,000 recognized Startups.
• With policies promoting innovation-driven MSMEs, dual recognition is expected to become more common.
• Sectors like green technology, AI, agritech, and digital health are seeing increasing overlaps where small businesses are transforming into innovation-led Startups.

Udyamita Helpline – Your Guide to Dual Recognition

At Udyamita Helpline, we help you navigate both MSME registration and the startup recognition process. Our experts assess if your business qualifies for both and streamline your applications.

Conclusion

To conclude, MSMEs and Startups are not mutually exclusive – in fact, they complement each other.

• MSMEs are vital for stability, job creation, and regional growth.
• Startups drive innovation, disruption, and rapid scaling.
• When an MSME takes an innovation-driven approach, it can achieve dual recognition, unlocking the best of both worlds – financial stability and global scalability.

For entrepreneurs, the key is to evaluate your business model:

If you’re building something innovative and scalable, Startup recognition alongside MSME can significantly boost your growth trajectory.

If you’re running a stable small business, MSME registration alone can give you robust government benefits.