In furtherance to the Self-Reliant Movement (Aatma-nirbhar) announced by the Prime Minister on 13th May, 2020, the Union Minister of Finance & Corporate Affairs Ms. Nirmala Sitharaman announced the Economic Package in order to focus on;
- liquidity and
The Finance Minister stated that the Government shall build on the Pradhan Mantri Garib Kalyan Yojna (PMGKY) which was announced during Lockdown 1.0 itself.
It should be noted that not all the announcements under the package are covered yet. The Finance Minister shall address the nation for the coming few days with the Ministry of Finance to announce the complete vision of the package in parts.
The announcement on 13th May, 2020 focussed on Micro, Small & Medium Enterprises (MSMEs), Non-Banking Finance Institutions (NBFCs), Housing Finance Companies (HFCs), Micro Finance Sector, Power Sector, etc. Tax relief, reliefs from contractual commitments and compliance reliefs were also pronounced.
The idea of introducing this first package is to ease the pressure on businesses and to assure them that the Government stands with them in these tough times.
Though everyone is still unsure as to how and when the businesses will resume their normal operations, such packages would obviously help them to stand back on their feet once the lockdown is over.
We have covered some frequently asked questions hereunder to solve queries about the said announcements & reliefs.
RELEFS ANNOUNCED FOR BUSINESSES / MSMEs
1. Which enterprises were governed by the Micro, Small & Medium Enterprises Development Act (MSMED Act), 2006?
Answer: Section 7 of the Micro, Small & Medium Enterprises Development Act (MSMED Act), 2006 under Chapter III enshrines the classification of enterprises to be governed under the Act. It states the thresholds under two separate divisions i.e. Manufacturing or production of goods and providing or rendering of Services.
EXISTING THRESHOLDS are as under;
MICRO ENTERPRISES –
Manufacturing Sector – Investment less than Rs. 25 Lakhs; and
Service Sector – Investment less than Rs. 10 Lakhs
SMALL ENTERPRISES -
Manufacturing Sector – Investment less than Rs. 5 Crores; and
Service Sector – Investment less than Rs. 2 Crores
MEDIUM ENTERPRISES -
Manufacturing Sector – Investment less than Rs. 10 Crores; and
Service Sector – Investment less than Rs. 5 Crores
NEW THRESHOLDS OF MSMEs
2. How are the thresholds under the MSMED Act, 2006 revised by the package announced on 13.05.2020?
Answer: Under the new definition of MSMEs, the bifurcation between the Manufacturing Sector and the Service Sector has been removed and an additional criteria of turnover limit has been inserted.
NEW THRESHOLDS introduced are as under;
MICRO ENTERPRISES – Investment less than Rs. 1 Crores and turnover less than Rs. 5 Crores;
SMALL ENTERPRISES - Investment less than Rs. 10 Crores and turnover of less than Rs. 50 Crores; and
MEDIUM ENTERPRISES - Investment less than Rs. 20 Crores and turnover less than Rs. 100 Crores.
REGISTRATION OF MSMES
3. How can a MSME be registered in India?
Answer: Post Notification S.O 2576 (E) dated 18.09.2015, all new MSME registrations are to be done under the Udhyog Aadhar Memorandum (UAM) portal on the Ministry of MSMEs website. Having an Aadhar Number is compulsory to proceed with the MSME registration process. There is no registration fee under the UAM portal.
4. What the validity period of such MSME registration?
Answer: A MSME Registration is valid infinitely till the business is running and the same requires no renewal.
5. What are the benefits of a MSME registration?
Answer: Having a MSME registration, will not only help the enterprise with easy access to loans cheap interest rates but also tag along taxation benefits. Applicability of the provision for delayed payments, reimbursements, subsidies, liberalized bank facilities, etc. are some of the many benefits of an MSME. Further, in light of the announcements made by the Government, MSMEs have been awarded with a list of allowances, benefits, etc. to help them sail.
6. What activities can be carried out by MSMEs?
Answer: Only manufacturing and service sectors are covered under the MSME registration. Vide F. No. UAM/MC/01/2017-SME dated 27.06.2017 laying out a list of NIC Code and activities not covered under Section 7 of the Micro, Small & Medium Enterprises Development Act, 2006. The list is reproduced under for reference:
"02 Forest and Logging
03 Fishing and aquaculture
45 Wholesale, retail trade and repair of motor vehicle and motorcycles
46 Wholesale trade except for motor vehicles and motorcycles.
47 Retail Trade Except of Motor Vehicles and motor cycles
97 Activities of households as employees for domestic personnel
98 Undifferentiated goods and services producing activities of private house-holds for own
99 Activities of extraterritorial organizations and bodies"
LOAN BENEFITS FOR MSMES
7. What measures has the Government introduced to help the continuous functioning of businesses / MSMEs?
Answer: The Government has introduced Term Loans to be provided to businesses in order for them to survive the hit of the COVID – 19 on the economy.
The said loans shall be provided by Banks and Non-Banking Financial Institutions without asking for any guarantee fee or fresh security / collateral from the MSME.
This is an emergency fund of Rs. 3 Lakhs Crores provided to businesses and MSMEs to avoid from sinking.
8. What is the monetary limit of the collateral free loan?
Answer: The loan shall be up to 20% of the outstanding credit in a business / MSME as on 29th February, 2020 and the loan would be at a concessional rate of interest.
9. Which MSMEs can avail such term loan benefits?
Answer: Any Businesses / MSME having outstanding credit up to Rs. 25 Crores or a turnover of less than Rs. 100 Crores can avail such benefit.
10. What shall be the duration of the term loan?
Answer: The term loan shall continue for a period of four years with one-year moratorium on repayment of the principal amount.
11. Whether a new enterprise can avail the benefit of such loans?
Answer: The enterprise should have an outstanding credit up to Rs. 25 Crores or a turnover of less than Rs. 100 Crores in order to avail the benefits of the loan irrespective of the birth of the enterprise.
12. What is the last date for availing such loans from Banks and NBFCs?
Answer: The Scheme of providing these loans for the survival of MSMEs will last till 31st October, 2020.
13. What relief measures are announced by the Government to aid the Businesses / MSMEs severely affected by the lockdown?
Answer: For stressed businesses / MSMEs and those which are facing Non-performing Assets, the Government has planned to infuse Rs. 4000 Crores in the Sector via loans through the Credit Guarantee Trust for Micro and Small enterprises (CGTMSE) and thereafter, the Banks in order to aid the subordinate debts of the enterprises.
14. What are Non-performing Assets?
Answer: When a loan has not been repaid or the instalment schedule has not been adhered to, for a period of 90 days then such loan is called as a Non-performing Asset on the balance sheet of a Bank or NBFC.
15. How will the stressed MSMEs receive such loans?
Answer: The Government shall provide the CGTMSE with the amount who will in turn divert these funds to the Banks. The Banks shall provide loans to promoters of the MSMEs in order to incorporate the same in their enterprises.
FUND OF FUNDS SCHEME
16. Are there any limits to the amount provided as loans to stressed MSMEs?
Answer: Yes, the Banks shall give the promoters of stressed MSMEs an amount equal to 15% of his existing stake which shall not exceed Rs. 75 Lakhs.
17. What is Fund of Funds? What scheme has been introduced by the Government under Fund of Funds?
Answer: It is a type of Scheme wherein a parent fund invests in other small and subordinate funds and does not invest in debts or securities market.
For potential growth and viability of MSMEs, the Government aims to introduce an equity corpus of Rs. 10,000 Crores. This funding will allow mobilizing equity and infusion of Rs. 50,000 Crores in small and subordinate funds.
18. Which enterprises does the above Scheme focuses on?
Answer: The scheme aims to focus on businesses and MSMEs with great potential and give a boost to them thereby encouraging them to list themselves on recognized stock exchanges.
The scheme wants to address the problem of shortage of growth capital with MSMEs and it will help them grow in capacity and expand.
19. When was the Fund of Funds Scheme initially introduced?
Answer: The Finance Ministry based on the recommendations of the UK Sinha Committee addressed this Scheme during the announcement of the Union Budget, 2020 on 1st February, 2020 in order to help MSMEs raise funds through venture capitals and professional companies or corporations.
Though this Scheme was approved by the Finance Ministry but awaited a nod from the Cabinet.
OTHER RELIEFS FOR MSMES
20. How can a Corporation invest in the MSMEs market?
Answer: Under the Fund of Funds Scheme, the corporations are allowed to buy 15 per cent equity in the MSMEs with high credit-rating.
21. What further steps have been taken to boost MSMEs by the Government?
Answer: In order to give a push to MSMEs in market competitiveness, Government has decided to disallow Global Tenders for Government Tenders of up to Rs. 200 Crores. This will help small businesses and MSMEs to participate in such tenders and increase their business.
22. How will the Global Tenders be disallowed?
Answer: The General Financial Rules, 2017 shall be amended accordingly by the Department of Expenditure under the Ministry of Finance in order to disallow Global Tenders for provision of any goods or services up to Rs. 200 Crores.
This shall avoid unfair competition faced by MSMEs in the Indian market and open many opportunities to participate in Government sectors.
23. In light of the outbreak of COVID – 19, what measures have been put into place to help promotion of the MSME sector?
Answer: The Government has introduced E-market linkages for promotion and marketing of the MSME sector by replacing trade fairs and exhibitions. The Government plans to use "Financial Technology" (Fin-Tech) in order to enhance transaction-based lending with the help of the data collected vide the e-market.
The Government has also ordered that within 45 days, the Government agencies, central public sector enterprises (CPSEs), etc. will have to settle all the dues pending to be paid to the MSMEs.
RELIEFS ANNOUNCED UNDER EPFs
24. Why was the Pradhan Mantri Garib Kalyan Yojna (PMGKY) introduced by the Government?
Answer: The said Scheme was introduced for giving upfront benefit to the employers having up to 100 employees and where 90% of the employees are getting wages less than Rs. 15000. This was issued on 10th April, 2020.
25. Which Scheme has been introduced by the government for the benefit of the businesses and its employees?
Answer: The Finance Minister has announced an infusion of Rs. 25,000 Crores for the benefit of the employees under the Pradhan Mantri Garib Kalyan Yojna (PMGKY) wherein the Government has aimed to contribute 12% of salary of the employers and employees towards EPF.
This was provided earlier for salary months of March, April and May 2020 and been now extended for a further period of June, July and August, 2020.
EPF SCHEME MEASURES
26. What is an Employee Provident Fund (EPF) Scheme?
Answer: Under the EPF Scheme, the Employees' Provident Fund Organisation (EPFO) has been introduced which mandates contribution towards the EPF by the employees and an equal contribution by the employer for the employee to gain a lump sum amount along with interest on retirement.
27. Which establishments are covered under EPFO?
Answer: The EPFO covers establishments having 20 or more employees. However, some establishments having less than 20 persons can also be covered under the Organisation if they fulfil certain conditions and exemptions.
28. What measures have been taken for employers and employees for EPF Contribution?
Answer: The Government announced that the statutory PF contributions have been reduced from 12% to 10% for all establishments covered by EPFO for next three months. The same is not applicable to government companies.
RELIEFS FOR FINANCIAL INSTITUTIONS
29. What are Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs), and Housing Finance Companies (HFCs)?
Answer: Non-Banking Financial Companies (NBFCs) are the companies registered under the Companies Act, 1956 and are engaged in certain bank-like and financial services, but do not hold a banking license.
The primary engagement includes services like Loans and Advances, Acquisition of shares/stocks/bonds/debentures/securities or other marketable securities.
Where the principle business of an institution is of receiving deposits under any scheme or arrangement in lump sum or installments is also a Residuary NBFC but any institution whose principal business is that of agricultural or industrial activity or that of sale or purchase (other than securities) is not included as NBFC.
Microfinance Institutions (MFIs) are the financial companies which provide small loans up to Rs. 1 lakh in India to people who lack access to banking facilities.
It expands the opportunities by providing easy access to credits and making future investments possible for the under financed section of society thereby generating business/employment and significant economic growth.
The primary goal of MFI is to transform into financial institutions for development of communities that are sustainable.
A Housing Finance Company (HFC) is a company registered under the Companies Act, 1956 and is yet another form of NBFC.
It primarily aims and is engaged in the principal business of transacting of business or financing of acquisition or construction of houses, whether directly or indirectly.
A HFC is regulated by a National Housing Bank.
30. What measures have been taken or reliefs have been provided by the Central government for the Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs), and Housing Finance Companies (HFCs) in view of the Covid-19 situation?
Answer: The Finance Minister on 13th of May while addressing the nation and announcing the economic package declared that there will be a relief given to the Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs), and Housing Finance Companies (HFCs). The Finance Minister announced a 30,000 crore package for the above mentioned institutions.
Special Liquidity Scheme of Rs. 30,000 Crores for NBFCs/HFCs/Micro Finance Institutions (MFIs) by the Reserve Bank of India guaranteed by the Government of India. The main rationale behind the step is that the mentioned institutions are undergoing a difficult financial phase in the debt markets due to the prevailing Covid-19 situation.
This scheme aims at the primary and secondary market transactions in Investment grade debt paper of NBFCs, HFCs and MFIs. The Government has assured that the Securities will be guaranteed by the Government of India, which in turn will bring the growth in the market and liquidity support for these institutions.
RELIEFS FOR POWER SECTOR
31. Are there any other reliefs provided or steps taken by the Government for the NBFCs, MFIs and HFCs?
Answer: Yes, the Government has also introduced a Partial Credit Guarantee Scheme 2.0 of Rs. 45,000 Crore.
This scheme is available to the NBFCs, MFIs and HFCs which have low credit rating so that it becomes feasible for them to provide loans to individuals and MSMEs who are most affected in the business cycle due to pandemic. Keeping this in mind, the Government has decided to make liquidity infusions of Rs. 45,000 Crores to help the stakeholders.
32. What steps have been taken for the Power and Energy Sector by the Central Government in the Economic Package announced by the Finance Ministry?
Answer: With respect to the Power Sector, the Finance Ministry has announced the Liquidity infusion of Rs. 90,000 crores to the Power Distribution Companies (DISCOMs) in order save them from the cash flow problem and pays the revenues to the Power Transmission and Generation Companies.
It has been decided that the Central Public Sector Generation Companies will give rebate to the DISCOMs which shall eventually be passed on to the consumers.
RELIEFS TO CONTRACTORS & PROJECTS UNDER RERA
33. What benefits have been provided to the Contractors under the Economic Package announced by the Central Government?
Answer: Due to the Covid-19 pandemic and the lockdown imposed by the Central Government there in to contain the pandemic has resulted in the non-performance of the agreements and contracts between the parties. One of the sectors majorly affected by this has been the Infrastructure and Construction sector.
In view of that, the Finance Ministry announced certain reliefs for the Contractors. They have been provided with the extension up to 6 months by all the Central Agencies to fulfill their obligations of the contracts and agreements. It has also been announced by the Finance Ministry that there will be a release of the bank guarantees partially by the Government agencies.
This step has been taken by the Government to provide relief to the Contractors who are under strict obligation to complete their projects, construction work etc.
34. What measures have been announced by the Finance Ministry with respect to the Real Estate projects under RERA?
Answer: The Finance Ministry has announced the Extension of Registration and Completion date of the Real Estate projects under RERA by 6 months. There is a huge risk that the timelines might be extended for the completion of the Projects which would in turn result in the default of the Projects.
Therefore, in view of the same, it has been decided to extend the Registration and Completion date of the all the registered projects ending on or after 25th March, 2020 by 6 months. Furthermore, the regulatory authorities have the power to extend this time period by extra 3 months.
Also, it has been announced that Ministry of housing and urban Affairs will advise the regulatory authorities in States/UTs to consider the Covid-19 situation as Force Majeure under RERA.
DIRECT TAX RELIEFS
35. What reliefs have been provided under Direct Taxes by Finance Ministry while announcing the Economic package?
Answer: The major relief provided under Direct Tax in the Economic Package by the Finance Ministry has been with respect to the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS).
In the Economic package, the TDS rates for non-salaried payment to residents and Tax Collected at Source Rate shall be reduced by 25% of all specified rates for remaining period of the Financial Year 2020-2021. This comes into effect from 14th May, 2020 to 31st March, 2021.
In order to provide reliefs to the taxpayers as there has been a continuous stress in the economy due to the Lockdowns and the prevailing Covid-19 situation, the Government has taken a step to infuse/release liquidity of Rs. 50,000 crore.
It has also been announced that immediate issuance of the pending income tax refunds will be done to the charitable trusts, non-corporate persons, LLPs etc. to help them financially in these difficult times.
36. Are there any relaxations provided to the Taxpayers in the timelines of filing returns, etc. in Direct Tax?
Answer: Yes, the government has provided various relaxations in different areas in Direct Tax.
Firstly, while announcing the Economic package, the Government has extended the due date of Income Tax Returns for this Financial Year 2019-20 from 31st July, 2020 and 30th October, 2020 to 30th November, 2020.
Secondly, the tax audit due date will be extended from 30th September, 2020 to 31st October, 2020.
Thirdly, the date for making payment without additional amount under the Vivad se Vishwas Scheme will be extended to 31st December, 2020.
Fourthly, the date of assessments has been extended by the Finance Ministry. The date of assessments getting barred on 30th September, 2020 has been extended to 31st December, 2020 and those getting barred on 31st March, 2021 extended to 30th September, 2021.
37. What are the measures other than Pradhan Mantri Garib Kalyan Package provided by the government?
Answer: The Reserve Bank of India raised the Ways and Means advance limits by 60% for the States along with the increase in the Overdraft duration limits in response to the government's request.
As the Taxpayers are already under a huge distress due to the prevailing Covid-19 situation and the lockdown, the Government decided to issue the pending income-tax returns up to 5 Lakhs. For the same a "Special Refund and Drawback Disposal Drive" is implemented which deals with all the pending refunds and drawback claims.
The Finance Ministry also announced Rs 15,000 crore for Emergency Health Response Package.
38. What are the relaxations provided by the Government in statutory and compliance related matters with respect to different domains?
Answer: The Finance Ministry has announced some miscellaneous reliefs and relaxations.
These relaxations are:
- The dates for filling the Income-tax return has been extended to June 30,2020 along with extending the filling GST returns till end of June, 2020.
- Payment related to any Motor vehicle and Health Insurance Policy can be done before May 15,2020.
- All the debit card holders are relaxed to withdraw cash free from any ATM for the next 3 months.
- Custom clearances shall be provided 24*7 till June 30, 2020.
- Further all the mandatory Board Meetings can be extended by 60 days till September 30,2020 and in case of Extraordinary General meetings video conferencing with e-voting or simplified voting facilities is allowed.
39. What are the major relaxations provided or measures taken by the Reserve Bank of India in view of the current pandemic situation?
Answer: The Reserve Bank of India in view of the current situation and provide relief to the various stakeholders reduced the Cash Reserve Ratio resulting in liquidity of Rs 1,37,000 crore.
A Targeted Long-Term Repo Operations of Rs. 1,00,050 crore is introduced for deployment in corporate bonds, non-convertible bonds and commercial papers.
Further Rs. 50,000 crore is announced for investment in grade bonds, non-convertible debentures of NBFCs and MFIs into order to reduce their financial distress and increase he liquidity.
The banks' limit for overnight borrowing under MSF is Marginal Standing Facility increased in order to avail an additional Rs. 1,37,000 crore of liquidity at MSF rates.
40. What are the additional relaxations provided by Reserve Bank of India relating to different Financial Institutions?
Answer: The Reserve Bank of India has announced reliefs for various Financial institutions. Special refinance facilities for NABARD, SIDBI and NBH for Rs. 50,000 crore is announced at the policy repo rate.
Similarly, Rs.50,000 crore is announced to open special liquidity facility in mutual funds to ease out the liquidity pressures.
A moratorium of 3 months is announced for the payment of installments and the interests on the working capital facilities for all the Term Loans. This relaxation has been provided keeping in view the current situation of the lockdown where the individuals and the companies are not able to work and operate and there are restrictions imposed on the same.
Further, extension of additional one year has been provided on the date for commencement for commercial operations for the loans given by NBFCs to commercial real estate sector.
IMPACT OF THESE RELIEFS:
The Government has taken measures to ease the working of the small businesses and the MSME Sector and provided monetary reliefs for them to survive the breakdown of the economy.
The Government has increased the thresholds under the definition of MSMEs to a great extent. It has kept the post COVID – 19 era into the picture while making these decisions like introduction of E-market linkages. This not only promotes digitisation in the Sector but also replaces trade fairs in order to maintain social distancing norms and gatherings.
Avoiding Global Tenders will help move forward the Self – Reliant India initiative and will provide MSMEs with a boost in facing the competition in Government tenders. With Term Loans and EPF contribution reductions, the reliefs aim at functioning of the businesses including the MSME Sector and their employees without any obstructions.
With extensions given to contractors and ITRs to charitable trusts, the Government has recognized the low cash flow rate in every business or undertaking because of the complete lockdown of the country and are measures which were the need of the hour.
The Government has done an incredible job in chalking out these reliefs. Now it is to be seen what further relief measures are introduced for AatmaNirbhar India.
This content is purely an academic analysis under "Legal intelligence series".
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