Prime Minister Narendra Modi, on May 12’ 2020, announced his vision of Aatmanirbhar Bharat and gave a stimulus package of 20 Lakhs CR in support of this vision. On the onset of this, the Finance Minister on Wednesday i.e., May 13’ 2020, announced various measures allocating 20 Lakhs CR economic packages to multiple sectors. These measures aimed to focus on land, labor, liquidity, and law.
As a result, six significant announcements were made for the benefit of the MSME sector. And help provide the necessary push for survival and growth of this sector as the MSME sector has been critical for employment preservation and growth. The key measures were as follows:
The FM’s announcement that the Emergency Credit Line Guarantee Scheme (ECLGS) will be extended through March 2023 was a key takeaway from her budget address. In addition, the guaranteed cover has been increased by Rs 50,000 crore. The scheme’s overall allocation will rise to Rs 5 lakh crore. The finance minister launched ECLGS worth Rs 20 lakh crore in the last budget to assist the MSMEs affected by Covid.
1) Collateral free Automatic Loan for SMEs up to 3 Lakhs CR
MSME unit, which falls within limits given, will not have to pay any collateral or guarantee for the loans availed under this scheme. Limits for MSME eligible under this is as follows: MSME unit with up to Rs 25 CR outstanding credit and Rs 100 CR turnover
- They will also not be required to pay any principal component of the loan for the first year. The tenure of the loan will be for four years.
- The MSME can get up to 20 percent of all outstanding credit as on February 29, 2020, which will be offered by Banks and NBFCs, and this scheme can be availed until October 31, 2020.
- The government will provide complete credit guarantee cover to lenders on the principal and interest amount.
Benefit: This will benefit 45 lakh units to resume business activities and safeguard jobs and help provide liquidity.
2) Rs 20,000 CR Subordinated Debt for stressed MSMEs
- MSMEs declared NPAs or those stressed would be eligible for equity support.
- The government will provide Rs 4,000 CR partial credit guarantee support to banks. Banks will give debt to promoters of the MSMEs in the form of equity infusion.
- Banks are expected to provide the subordinate-debt to promoters of such MSMEs equal to 15% of his existing stake in the unit subject to a maximum of Rs 75 lakhs.
Benefit: Around Rs 2 lakh MSMEs will benefit and help them solve the problem of equity.
3) Rs.50,000 CR equity infusion through Fund of Funds
- The government will infuse this amount through a Fund of Funds that will be operated through a Mother fund and a few daughter fund. The Fund of Funds will be set-up with a corpus of Rs 10,000 CR.
- It will provide funding to MSMEs that are performing very well and can use the opportunity to expand.
Benefits: This will benefit MSMEs with potential and viability by providing them greater support in capacity expansion and market-listing.
4) Revised MSME definition
- The definition is being changed wherein the investment limit is revised upwards along with the addition of turnover as criteria.
- Differentiation between manufacturing and service MSMEs is removed.
- The below table summarizes the changes:
Benefits: This will encourage MSMEs to grow bigger without losing on the benefits availed by MSMEs.
5) Global tenders disallowed
- Addressing MSMEs issue of unfair competition from foreign companies in government procurement tenders due to the size and strength differ. However, the government said it will not allow global tenders in such schemes up to Rs 200 CR.
- The government said it will make necessary amendments to General Financial Rules to enable this provision.
Benefit: It will help small units participate in government purchases and protect them from foreign competition and help compete with them. It is also a significant step towards creating a self-reliant India.
6) Other Measures
- The government and central public sector enterprises will release all pending MSME payments in 45 days.
- Post covid-19, trade fairs would become difficult; hence Fintech enterprises will be used to boost transaction-based lending using the data by the e-marketplace. This e-market for developing linkages for MSMEs will be promoted to replace trade fairs and exhibitions.
Benefit: This will help the enterprises to strengthen their network and also help clear the dues and provide necessary cash flows for running the businesses.
MSMEs (Micro, Small and Medium Enterprises) can enjoy several tax benefits in India. Some of these benefits are:
Lower tax rates: The government provides lower tax rates to MSMEs as compared to larger businesses. The corporate tax rate for MSMEs with a turnover of up to Rs. 50 crores is 25% (as per the 2021-22 budget). This helps small businesses to save money on taxes and invest in their growth.
Exemption from Minimum Alternate Tax (MAT): MSMEs are exempted from paying the Minimum Alternate Tax (MAT). This tax is applicable to companies that have claimed a deduction under certain provisions of the Income Tax Act, but have not paid any tax due to various exemptions and deductions. The exemption from MAT can help MSMEs save money on taxes.
Deductions under Section 80JJAA: MSMEs can claim a deduction under Section 80JJAA of the Income Tax Act. This tax deduction is available to companies that employ new employees and have an annual turnover of up to Rs. 100 crores. The deduction is equal to 30% of the additional wages paid to new employees for three consecutive years.
Deductions for research and development: MSMEs can claim deductions for research and development activities. The government provides deductions for expenses related to scientific research and development, technology upgradation, and patent registration. MSMEs can claim deductions of up to 150% of the expenses incurred on these activities.
Concessional tax rates on capital gains: MSMEs can enjoy concessional tax rates on capital gains. If an MSME sells its assets, such as land or buildings, it can pay tax at a lower rate than other businesses. The long-term capital gains tax rate for MSMEs is 20%, while for other businesses, it is 30%.
8. Digital Transformation Initiatives
With the increasing importance of technology in business operations, governments and private organizations often announce initiatives to support MSMEs in adopting digital tools, enhancing their online presence, and leveraging e-commerce platforms. These initiatives may include training programs, subsidies for digital infrastructure, and access to online marketplaces.