Finance minister Nirmala Sitharaman has pledged a raft of steps, including a revamped credit guarantee scheme, presumptive taxation benefits and relief on contract execution, in a bid to lift the fortune of the country’s 63.4 million micro, small and medium enterprises (MSMEs) that account for a bulk of the jobs.
The government will infuse Rs 9,000 crore into the credit scheme, operational from April 1, to spur the flow of institutional credit into critical units.
This will lead to an additional collateral-free guaranteed credit of Rs2 trillion to such units and soften the blow of elevated interest rates by bringing down their borrowing cost by about 1 percentage point.
In FY21, about 8.36 lakh guarantees were approved under extant schemes by bodies like the state-run Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE), covering loans of Rs36,954 crore.
The renewed focus on MSMEs stems from the recognition of the fact that such units require a protracted period of succour to leave the pandemic scars behind and cope better with the risks of depleting export order flows. MSMEs account for about 40% of the country’s exports, 6% of the manufacturing GDP and almost 25% of the services GDP.
The government has decided to raise the turnover limit by 50% to claim presumptive taxation gains, which will benefit these units and certain professionals, with annual turnover up to Rs 3 crore and Rs 75 lakh, respectively. This relief, however, comes with a rider — the cash component of such relevant businesses and professionals must not be more than 5% of their receipts.
Under the presumptive tax scheme, a sum equal to 8% or 6% of the turnover or gross receipts is deemed to be the profit and gain from business, subject to certain conditions. If the assessee has claimed to have earned a sum higher than 8% or 6%, then only that higher sum is taxable. In case of professionals, a sum equal to 50% of gross receipts is deemed to be the profit and gain from business.
“This will help make tax filing for small businesses simpler as they will be relieved from the tedious task of maintaining books of accounts,”said Gurjodhpal Singh, chief executive at business financial platform Tide India.
Similarly, to support MSMEs in getting payments on time, deduction will be allowed to businesses for expenditure incurred on payments made to such units.
A Vivad se Vishwas scheme will be rolled out for MSMEs that have failed to execute contracts during the Covid period. Under this, 95% of the forfeited amount relating to bid or performance security will be returned to them by the government and state-run undertakings.