Udyam Registration: How to Choose the Right NIC Code for Your Business

Udyam Registration, introduced by the Government of India, is a simplified process for Micro, Small, and Medium Enterprises (MSMEs) to register their businesses and enjoy various benefits. One of the essential steps in this registration is choosing the correct National Industrial Classification (NIC) Code for your business. This classification is critical for identifying the type of business activity you’re involved in, which affects various aspects of your MSME registration and operations.

This guide explains how to choose the right NIC code for Udyam Registration, why it’s important, and how it impacts your business.

What is the NIC Code?

The NIC Code is a system developed by the Government of India to classify various business activities across sectors. The National Industrial Classification is used to categorize enterprises and their economic activities based on a pre-defined structure. It includes sectors like manufacturing, trading, services, agriculture, construction, and more. The current version in use is NIC-2008, which provides updated classifications based on contemporary business activities.

For example, if your business involves manufacturing textiles, you would select a NIC code from the relevant manufacturing sector.

Importance of NIC Code in Udyam Registration

Choosing the right NIC code is crucial for multiple reasons:

• Correct Classification: The NIC code ensures your business is properly classified according to the sector and type of activity. This classification is important for statistical purposes, government schemes, and subsidies.
• Government Benefits: Many government schemes and financial benefits, such as subsidies, tax exemptions, and low-interest loans, are linked to the NIC code you choose.
• Sector-Specific Regulations: Certain businesses may have industry-specific regulations, compliance needs, or tax structures that depend on the NIC code.
• Ease in Government Processes: When your business is registered under the correct NIC code, it becomes easier to participate in government tenders, procure licenses, and comply with laws.
• Accurate Data Representation: By selecting the correct NIC code, you contribute to the accurate statistical representation of industries, which aids policymakers in making decisions about resource allocation.

Steps to Choose the Right NIC Code for Udyam Registration

1. Understand Your Business Activities

The first step is to clearly identify your business activities. Are you involved in manufacturing, trading, or providing services? Do you operate in multiple sectors, or is your business focused on one area?

For example:

• A garment manufacturer will have a NIC code under the manufacturing sector.
• A software consultancy firm will fall under the services sector.

Make a list of the primary and secondary activities of your business, as this will guide you in selecting the NIC code.

2. Explore the NIC Code List

The NIC code list can be found on the official website of the Ministry of Micro, Small, and Medium Enterprises (MSME) or on the Udyam Registration portal. You will notice that the NIC codes are structured hierarchically, with sections, divisions, groups, and classes. Each code consists of a specific set of numbers representing various levels of classification.

For instance:

• Section: A broad category (e.g., Section C: Manufacturing)
• Division: A subcategory within a section (e.g., Division 14: Manufacture of Wearing Apparel)
• Group: Further breakdown of activities (e.g., Group 141: Manufacture of Wearing Apparel, except fur apparel)
• Class: A specific activity (e.g., Class 1410: Manufacture of all types of textile garments)

By navigating through this structure, you can narrow down the specific NIC code for your business.

3. Identify the Primary and Secondary NIC Codes

Once you have a broad understanding of the NIC structure, it’s essential to select both a primary and, if necessary, secondary NIC code(s).

• Primary NIC Code: This code should correspond to your core business activity. If manufacturing is your main activity, the NIC code from the manufacturing section would be appropriate.
• Secondary NIC Codes: If your business has diversified activities, like manufacturing and trading, you might need to select multiple NIC codes. However, your primary NIC code should be the one that most accurately reflects your primary revenue-generating activity.

For example, suppose you own a company that manufactures textiles and also runs a retail outlet for garments. In that case, you will need to choose a NIC code for manufacturing as the primary code and retail as the secondary code.

4. Match the Codes with Your Business Scale

NIC codes also help determine whether your business falls under micro, small, or medium enterprises based on the activities and the investment involved. Ensure that the chosen NIC code is consistent with the scale and scope of your business.

• Micro Enterprises: Investment in plant and machinery or equipment is at most Rs. 1 crore and turnover is not exceed Rs. 5 crore.
• Small Enterprises: Investment does not exceed Rs. 10 crore and turnover does not exceed Rs. 50 crores.
• Medium Enterprises: Investment does not exceed Rs. 50 crore and turnover does not exceed Rs. 250 crores.

Choosing the wrong NIC code could lead to complications in identifying your business size, which might impact government benefits or schemes you are eligible for.

5. Consult the NIC Manual

If you are unsure about the correct NIC code, refer to the NIC Manual. This document provides a detailed explanation of each classification and can help you better understand where your business fits within the structure.

The NIC Manual is particularly useful for businesses operating in niche sectors or engaging in complex or multiple activities that don’t fall under clear, conventional categories.

6. Seek Professional Help

If navigating the NIC code system feels overwhelming, it may be beneficial to consult professionals or legal experts who specialize in Udyam Registration. They can provide personalized advice and ensure that you choose the correct NIC code without errors.

7. Make Your Selection Carefully

Once you’ve done the research and consulted the necessary resources, finalize your choice of NIC code(s). Keep in mind that choosing the wrong NIC code can cause problems in future transactions, registrations, or when applying for government schemes.

Be accurate and double-check your selection before completing the Udyam Registration process.

Common Mistakes to Avoid While Selecting the NIC Code

• Choosing the Wrong Code: Picking an irrelevant NIC code that doesn’t reflect your business activity can lead to issues with compliance, government schemes, and licensing.
• Ignoring Secondary Codes: Many businesses focus only on their primary activity and overlook secondary codes, which could provide additional benefits.
• Not Updating NIC Code: If your business expands or shifts into new activities, you must update your NIC code accordingly to maintain compliance and continue enjoying benefits.
• Selecting Based on Misleading Information: Sometimes, businesses choose a NIC code based on advice that isn’t specific to their operation. Always consult official sources or experts for accuracy.

Updating or Changing Your NIC Code

You may need to update your NIC code as your business grows or changes its focus. If you fail to do so, your business might be classified incorrectly, which could affect your ability to access certain government programs.

To change your NIC code:

• Log into the Udyam Registration portal using your registration details.
• Update your business activity information.
• Submit the changes, and your NIC code will be updated.

Note: Now easily update udyam certificate through the udyam portal.

Conclusion

Choosing the right NIC code for your Udyam Registration is a vital step in ensuring that your business is accurately classified and able to access the full range of government benefits available to MSMEs. By understanding your business activities, exploring the NIC code list, and consulting professionals if necessary, you can avoid common mistakes and make informed decisions that will benefit your business in the long term.

Whether you’re a startup, a growing small enterprise, or an established medium-sized business, the correct NIC code will help you unlock the full potential of Udyam Registration and contribute to the overall success of your enterprise.