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Pursuant to PM Modi's announcement for the need of developing India into a ‘self-reliant' country, Finance Minister Nirmala Sitharaman made a slew of announcements on 13 May 2020.
Pursuant to PM Modi's announcement for the need of
developing India into a 'self-reliant' country, Finance
Minister Nirmala Sitharaman made a slew of announcements on 13 May
2020.
While announcements ranged from the real estate sector,
provident fund regulations, NBFCs, DISCOMs, and direct tax
measures, a major focus of the reforms was on MSMEs. The MSMEs have
been considered to be the backbone for the government's
'self-reliant' project.
Some of the key measures announced are briefly highlighted
hereunder:
MSME
Expansion of the scope of the definition of MSMEs under Micro,
Small and Medium Enterprises Development Act, 2006 (MSMED, 2006),
thereby enabling more enterprises (be it company, LLP,
partnership/proprietorship firm, etc.) to be eligible for such
benefits. A brief comparison of the maximum threshold limits under
the existing and proposed definition is given hereunder:
Amounts in INR
Criteria
Micro
Small
Medium
Existing
Proposed
Revision*
Existing
Proposed
Revision*
Existing
Proposed
Revision*
Investment
Manufacturing- 2.5 million; Service- 1 million
10 million
Manufacturing- 50 million; Service- 20 million
100 million
Manufacturing- 100 million; Service- 50 million
200 million
Turnover
N.A.
50 million
N.A.
500 million
N.A.
1 billion
* Applicable to both manufacturing and service enterprises,
thereby removing differentiation in criteria
Now, both investment and turnover criteria would need to be
fulfilled in order to claim benefits available to MSMEs.
Other
Benefits
Floating of global tenders for a value of up to INR 2 billion
by the government to be discontinued;
100% central government guaranteed term loan for up to 20%
outstanding criteria as on 29 February 2020 to be extended to
MSMEs having standard accounts, outstanding of INR
250 million and a turnover of up to INR 1 billion;
Provision of INR 200 billion subordinate debt to
stressed and NPA MSMEs. Government to infuse INR
40 billion in Credit Guarantee Trust for Micro and Small
Enterprises (CGTMSE). Banks to provide the subordinate-debt to
promoters of equivalent to 15% of their existing stake in the unit
subject to a maximum of INR 7.5 million, who will then infuse
equity in the unit;
Provision of INR 500 billion scheme for equity infusion in
MSMEs through Fund of Funds. The blueprint of the scheme to be
rolled out soon;
The facility of e-market linkage to bring sellers and consumers
at one place as a replacement for trade fairs and exhibitions to be
enabled;
MSME receivables from Government
and Central Public Sector Enterprises to be released in 45
days.
Direct Tax
25% reduction in withholding tax (WHT) rates for
non-salaried resident taxpayers, effective from 14
May 2020 to 31 March 2021, thereby enabling WHT rates to range from
0.75% to 22.5%, provided PAN is furnished by them;
Extension in due dates of income tax returns and audit reports
for FY 2019-20. Revised due dates for FY 2019-20 would be-
Particulars
Due Date
for Audit Report
Due Date
for Tax Return
Transfer Pricing Cases
31 October 2020
30 November 2020
Non-Transfer Pricing but Tax/Other Audit Cases
31 October 2020
30 November 2020
Other Cases
N.A.
30 November 2020
The due date for payment under Direct Tax, Vivad se Vishwas
Scheme, 2020 has been extended till 31 December 2020 without making
any additional 10% payment;
The extension of statutory time barring date for scrutiny and
best judgment assessments for AY 2018-19 and Transfer Pricing cases
for AY 2017-18 from 30 September 2020 to 31 December 2020.
Similarly, statutory time barring threshold for income escaping
assessments for AY 2013-14 barring on 31 March 2021 has been
extended till 30 September 2021**;
The pending income tax refunds to charitable trusts,
non-corporate businesses, and other professions including,
proprietorship, partnership and LLPs, along with cooperatives to be
issued immediately.
** The measure was part of FM's announcement, but it
wasn't a part of the Press release dated 13 May
2020.
Other
Measures
An extension of validity of government support for employer and
employee share of PF contribution under Pradhan Mantri Garib Kalyan
Package (PMGKP) to be extended to August 2020;
A reduction in PF contribution of both employer and employee
share from 12% to 10% for employees other than covered under
PMGKP;
100% guarantee by the Indian government for investment in the
investment grade debt securities of NBFCs, Housing Financing
Corporations, and Micro Finance Institutions; INR 900 billion
liquidity injection for DISCOMs via Power Finance Corporation and
Rural Electrification Corporation;
6 months' extension in contracts with central agencies,
such as Railways, Ministry of Road Transport and Highways and CPWD
including in respect of EPC and concession agreements;
State Governments advised to treat COVID-19 as an event
eligible for 'Force Majeure' under RERA, 6 month's
extension to registration and completion date to all real estate
dates, with authority to States to further extend it by 3
months.
Our Comments
The above announcements would surely give a boost to the various
sections of the society, thereby enabling higher disposable income
in their hands, which is expected to be reinvested and generate
returns for the economy. Entities can assess their eligibility and
may get registered as MSMEs to avail of various benefits.
While the blueprint of the above announcements is yet to be
released via legislative amendments, the following points need to
be considered:
Whether interest for late filing of return would still be
levied, as has been the norm in recent years, on account of
extension of due dates;
A reduction in WHT rates does ensure liquidity, however, the
taxpayers would have to gauge their advance tax liability quarterly
so as to save on the interest costs;
Evaluate the status of outstanding demands and file the
appropriate application for deletion thereof and release of
refund.
Originally published May 15, 2020.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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