Union Budget 2020 India: India watched with bated breath as Finance Minister Nirmala Sitharaman unveiled the budget for the year 2020-21 on February 1st 2020. “This is the Budget to boost the income of people of India and enhance their purchasing power”, she affirmed. After a year of economic slowdown, this budget is focused on trying to put money in the hands of people and thereby stimulating economic growth. Among the key focus areas of this budget are measures to accelerate growth of Micro, Small and Medium Enterprises (MSMEs) and to boost investment in the Indian start-up ecosystem. Here is how Budget 2020 will impact MSMEs and Start-ups.
Here is the guide to registering your company / startup as a MSME
Ministry of Micro, Small and Medium Enterprises has vide Notification dated 1st June, 2020 revised definition of MSME.
Further increase the limit for medium manufacturing and service units. Now it will be Rs. 50 crore of investment and Rs. 250 crore of turnover.
Please find the notification at https://pib.gov.in/PressReleasePage.aspx?PRID=1628345
Incentives for MSMEs
Protection against delayed payments
The Micro, Small and Medium Enterprises Development Act, 2006, made provisions to mitigate the problem of delayed payment, whereby any buyer who fails to make payment to MSMEs, as per agreed terms or a maximum of 45 days, would be liable to pay monthly compounded interest at three times the bank rate notified by RBI.
Requirement for audit
Currently, businesses having turnover of more than Rs. 1 crore are required to get their books of accounts audited by an accountant. In order to reduce the compliance burden on small retailers, traders, shopkeepers who comprise the MSME sector, the turnover threshold for audit has been proposed to be raised from the existing Rs. 1 crore to Rs. 5 crore. The increased limit shall apply only to those businesses which carry out less than 5% of their business transactions in cash.
Reduction of corporate tax rate
To boost investment, the corporate tax rate for new companies in the manufacturing sector has been reduced to 15%. For existing companies, the rate has also been brought down to 22%. This will enable companies to expand their businesses and make fresh investments in the coming future.
Trade Receivable Discounting system
In order to enhance economic and financial sustainability of MSMEs, amendments have been proposed to the Factor Regulation Act 2011. The amendment will enable NBFCs to extend invoice financing to MSMEs through Trade Receivable Discounting systems or TReDS. The objective of TReDS, launched by the Reserve Bank of India in December 2016, is to facilitate financing of invoices / bills of MSMEs drawn on corporate and other buyers, including the Government Departments and PSUs, by way of discounting by financiers.
Working capital credit
To ensure working capital financing for small businesses, a scheme to provide subordinate debt for entrepreneurs of MSMEs is proposed to be introduced. This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE).
Ease of doing business
An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs.
Intellectual Property Right (IPR)
A digital platform would be promoted that would facilitate seamless application and capture of IPRs. Also, in an Institute of Excellence, a Centre would be established that would work on the complexity and innovation in the field of Intellectual Property.
MSMEs also get exemption in ISO certification fees.
Government e-Marketplace (GeM)
To enable smooth procurement by MSMEs, the Government e-Marketplace (GeM) will create a Unified Procurement System for providing a single platform for procurement of goods, services and works.
A National Logistics Policy will be released soon. Inter alia; it will clarify the roles of the Union Government, State Governments and key regulators. It will create a single window e-logistics market and focus on generation of employment, skills and making MSMEs competitive.
Restraint on import of items being produced by domestic MSMEs
Labour intensive sectors in MSME are critical for employment generation. Cheap and low-quality imports are an impediment to their growth. Special attention has been taken to put measured restraint on import of those items which are being produced by our MSMEs with better quality. Keeping in view the need of this sector, customs duty is being raised on items like footwear and furniture.
Incentives for Start-ups
In order to encourage the start-ups to employ highly talented employees at a relatively low salary by granting them Employee Stock Option Plan (ESOPs), the burden of taxation on the ESOPs has been proposed to be reduced. Currently, ESOPs are taxable as perquisites at the time of exercise which leads to cash-flow problem for the employees who do not sell the shares immediately and continue to hold the same for the long-term.
It is proposed to defer the tax payment on these ESOPs granted by start-ups to their employees by 5 years or till the employee leaves the company or when the said employee sells those shares, whichever is earliest.
Tax holiday for eligible Start-ups
Currently, an eligible Start-up having turnover up to 25 crores is allowed deduction of 100% of its the profits for three consecutive assessment years out of seven years if the total turnover does not exceed 25 crore rupees. In order to extend this benefit to larger start-ups, the turnover limit has been proposed to be increased from existing ` 25 crore to ` 100 crores. Moreover, considering the fact that in the initial years, a start-up may not have adequate profit to avail this deduction, the period of eligibility for claim of deduction has been extended from the existing 7 years to 10 years.
Seed funding support
The government has proposed to provide early life funding, including a seed fund to support ideation and development of early stage Start-ups.
Quantum technology is opening up new frontiers in computing, communications, cyber security with wide-spread applications. It is expected that lots of commercial applications would emerge from theoretical constructs which are developing in this area. It is proposed to provide an outlay of Rs. 8000 crore over a period 5 years for the National Mission on Quantum Technologies and Applications
There are various government schemes in which interests and capital subsidy is provided against the sanction loan amount for new projects. Concession for electricity bills is available for MSMEs.
MSME is allowed to participate in all government tenders upto tender value of Rs. 200 crore