If you are a business owner looking for funding, you should consider applying for an SME/MSME Loan. However, before applying for an MSME Business Loan, you must ensure you meet the MSME Loan eligibility criteria.
Most loan providers don’t give a Business Loan if you have not filed an ITR, which serves as proof of income and validates your company’s legitimacy and future potential.
If you meet the MSME Loan eligibility criteria, you can get lower Business Loan interest rates in India to:
- Invest in your firm’s infrastructure
- Meet working capital requirements
- Purchase new machinery or upgrade to the latest technology
- Meet overheads such as accounting fees, advertising, rent, repairs, etc.
What is MSME?
According to the Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006, the Government of India has established MSME or Micro, Small, and Medium Enterprises. These businesses primarily produce, manufacture, process, or store goods and commodities.
MSMEs are an important sector of the Indian economy and significantly contribute to the country’s socio-economic development. They also create job opportunities and contribute to developing the country’s backward and rural areas. Hope you now have an answer to what is msme.
What is ITR?
ITR is a form that provides the Income Tax Department with information about your income sources and taxes. Based on your annual income, this information is used to calculate your tax liability. Every year, you must file income tax returns at specific times during the fiscal year based on your tax slabs.
In addition to your general income, your ITR File must include capital gains from market investments. You may also be eligible for exemptions up to a certain amount based on your investments. You must remember to file the returns by the due date. You may be penalized if you fail to file your ITR by the due date. In contrast, if you pay more tax than you owe in a given year, you are eligible for an income tax refund.
Why is ITR required while applying for an MSME Loan?
Individuals and businesses can use the ITR as proof of income. The tax amount you pay to the government informs financial institutions about your earnings for a given tax year. Most lenders will require ITR for the previous two to three years. This document is used to calculate your average annual income.
Lenders may deny your loan request if they notice significant variations in your ITR or if your recent ITR is significantly lower than previous ones.
Situations in which Businesses Do Not Have ITR
- If you have just stepped into a business that has not yet completed a year, you are unlikely to have filed an ITR for it.
- If your annual income as a business owner is less than ₹2.5 Lakh, you may not have filed an ITR. Even if your income does not fall within the tax bracket, filing a nil return is a good practice.
Suppose the lending institution approves your MSME Business Loan application without an ITR. In that case, they expect you to pay a higher Business Loan interest rate in India and put collateral as a guarantee.
What are the MSME Loan Eligibility Criteria?
If a business owner wishes to obtain an MSME Loan, they must first meet certain eligibility requirements, which are:
- An applicant’s age must be between 22 and 65 years.
- Their business must be older than two years.
- They must have filed Income Tax Returns for the business for at least one year.
- Their credit score must be 750 or higher, and they must not have a history of loan default in their or the business’ name.
MSME Loan Documents Required
Once you meet the MSME Business Loan eligibility criteria, you must submit a few documents to get approved for an MSME Loan. The following documents are required for MSME/SME loans:
- KYC Documents: Aadhaar card, PAN card, voter’s ID, driving license, or any other government-approved document
- Address Proof: Electricity bill, rent agreement, and passport GST return and account statements dating back at least six months, as well as profit and loss statements
- Proof of Business Ownership: Business Registration Documents
- ITR for the previous two years
ITR is a critical document for obtaining funds. You can obtain a Business Loan for an MSME to set up and/or expand your business if you can assure the lender that you will pay back the entire amount and that you can do so. Once the ITR is completed, lenders offer MSME Loans at an extremely low Business Loan interest rate in India and a slew of other benefits, such as a line of credit.