By Tanvi Loond
After Prime Minister Modi’s announcement of India’s second stimulus package on May 12, 2020 at a headline figure of a whopping Rs. 20 lakh crores ($0.27 trillion), Finance Minister Nirmala Sitharaman’s speech was eagerly awaited by all. While FM Sitharaman announced the allocation of funds to relief packages for vulnerable sections of society, daily wage workers, healthcare infrastructure, government departments and small businesses, more can still be done on various fronts such as salary subsidization. Meanwhile, the announcements made so far are targeted at job retention schemes, SME loan guarantees, direct cash handouts and of course, healthcare. Here’s a quick glimpse of how India’s relief package will be allocated to help the MSME sector grapple with the devastating impact of this global pandemic.
TDS/TCS rate reduction
This will benefit businesses / individuals who receive payments for contract, professional fees, interest, rent, dividend, commission, brokerage, etc. This reduction shall be applicable for the remaining part of the FY2020-21 i.e. from 13th May 2020 to 31 st March, 2021. In order to provide more funds at the disposal of the taxpayers, the rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts shall be reduced by 25% of the existing rates.
Subordinate Debt for Stressed MSMEs
The eligibility criteria for this is that MSMEs should be functioning but are stressed or have been categorized as non-performing assets. A subordinate debt is an unsecured loan which ranks below secured loans. In other words, in the event of a liquidation a subordinate debt can only be paid after the claims of secured creditors have been met. GoI will facilitate provision of Rs 20,000 crore as subordinate debt.
Collateral free Automatic Loans for Business
The eligibility criteria for this is that the borrower should have less than Rs 25 crore outstanding and turnover of Rs 100 crore. An Emergency Credit Line will be granted to Businesses / MSMEs from Banks and NBFCs upto 20% of entire outstanding credit as on 29.2.2020. The tenure of the loan would be 4-years with 12-months moratorium on Principal repayment. 100% credit guarantee cover will also be given to Banks and NBFCs on principal and interest. This scheme can be availed till October 31st,2020.
Equity infusion through MSME Fund of Funds
The eligibility criteria for this is that the business should have a high credit rating (AAA-rated) and wants to list itself on stock exchanges. A Fund of Funds (FoF) with Corpus of Rs10,000 crores will be set up which will provide equity funding for MSMEs with growth potential and viability. FoF will be operated through a Mother Fund and few daughter funds and will buy upto 15% equity.
EPF contribution support for eligible Businesses and Workers for 3 more months
This support will be provided to eligible establishments only. Under Pradhan Mantri Garib Kalyan Package(PMGKP), payment of 12% of employer and 12% employee contributions was made into EPF accounts. This was provided earlier for salary months of March, April and May 2020 and will be extended by another 3 months to salary months of June, July and August 2020
EPF contribution reduced for Businesses & Workers for 3 months
Statutory PF contribution of both employer and employee will be reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months. This will provide more take home salary to employees and give relief to employers in payment of Provident Fund dues. CPSEs and State PSUs will however continue to contribute 12% as employer contribution. This scheme will be applicable for workers who are not eligible for 24% EPF support under PM Garib Kalyan Package and its extension.
Sectors employing wage workers
This is for businesses employing less than 100 workers. 24% of monthly wages will be credited into the PF accounts of the workers for next three months for wage-earners below Rs 15,000 p.m.
Global tender to be disallowed upto Rs 200 crores
Global tenders will be disallowed in Government procurement tenders upto Rs 200 crores. Thus protecting Indian MSMEs during this difficult time.
The administrative procedure required to be followed for claiming these relief packages is yet to be clarified. While some well-established MSMEs will be able to navigate the complex labyrinth of concerned government authorities, many small businesses will likely struggle to understand how they can benefit with respect to these provisions. Therefore, it is now our prerogative to, and using Mr Modi’s words, “be vocal about going local”, to support local businesses at this difficult moment, so that we may emerge from this collectively and stronger.
- Tanvi Loond is Founder and CEO, Insta C.A., an online tax and accounting service for SMEs and startups.