The Union Budget has offered some lucrative offers for the SME sector. But, perhaps, it is too early to comment on the policies because a lot depends on the effective and timely implementation of schemes
The Union Budget, presented by Minister for Finance Arun Jaitley on February 1, brought with it both, new and modified policies and tax reforms that can be beneficial for the Indian small and medium enterprises (SME) sector in the long-run. Despite the fact that the Budget was heavily focused on rural and agriculture sectors, it also contains several policies that can help small businesses upgrade their capabilities and compete at par with the established ones.
While there are several factors that needs to be considered before these policies are executed, certainly, the Budget proves that the Government is undertaking all efforts to provide for a comprehensive infrastructure to help the SME sector grow. let us explore the various provisions/benefits for small businesses according to the just presented Budget.
Being one of the most anticipated expectation from this Budget, the relaxation in income tax for the micro small and medium enterprises (MSMEs) received positive feedback from most industries. The benefit comes in the form of five per cent tax reduction from the current income tax applicable rate of 30 per cent on companies that have an annual turnover of up to Rs 50 crore.
The revised 25 per cent tax will benefit close to 96 per cent, ie approximately 6.67 lakh businesses across the country. This is also suggestive of the fact that the Government will be forgoing up to Rs 72,000 crore in tax revenues with this tax reduction in order to help small businesses grow, which is commendable.
Crucially, the Budget threw some light on some key points regarding the much-anticipated Goods & Services Tax (GST) Bill, which, if implemented, can create a uniform tax system by eliminating multiplicity of taxes. In his Budget, the Finance Minister informed that the GST Council has finalised its recommendations on almost all the issues based on consensus of all those involved. They are expected to put forth their final decision on the new taxation system across all industries by April 1.
Furthermore, despite protests by some tax officers against GST, the Central Board of Excise and Customs will continue its efforts to eliminate State control over taxes, and is expected to play a key role in ushering in the GST that can significantly benefit small businesses.
Typically, companies have to pay a minimum tax of 18.5 per cent (excluding cess and surcharge) on book profits. This means, even SMEs or start-ups, that receive 100 per cent tax benefits, have to pay the Minimum Alternative Tax (MAT) that can be credited from future taxes after a period of 10 years.
However, after observing the inability of most SMEs to pay this tax, after the designated period, the Government decided to introduce some provisions within MAT that can benefit such ventures. As per sections 44AA of the Income Tax Act, 1961, a person engaged in business is required to maintain regular books of account under certain circumstances. However, to relieve small taxpayers from this tedious work, the Act has framed the presumptive taxation scheme under sections 44AD and 44AE.
Under this scheme, a presumptive income of eight per cent on gross receipts is calculated upon which the tax is computed for businesses that are run by entrepreneurs and/or partnership firms (excluding limited liability partnership), provided the turnover does not exceed two crore rupees.
In this Budget, the current rate of eight per cent has been reduced to six per cent for gross receipts that have been received via non-cash means. This provision will help improve the overall SME sector, as it can bring more transparency within the system. The Budget has certainly managed to give some hope to the SMEs sector, especially, the start-ups. It has doled out lucrative incentives for going digital in an attempt to achieve a cashless economy.
Be it the cashback scheme, announced for merchants using the BHIM mobile wallet, or allocating benefits worth Rs 2,500 crore for unified payment interface and other digital payments, the Government is certainly leaving no stone unturned when it comes to creating a digital economy. While it is too early to determine whether each of these policies will be implemented in time, it can be said that the benefits announced in the Budget for SMEs, will play a key role in propelling their growth in future.
(The writer is founder and director, ExportersIndia.com)