Reeling under the pressure of demonetisation, which has weeded out 86% of the country’s bank notes, Arun Jaitley, while presenting his Budget on Wednesday focused on startups, and the small and medium enterprises.
It meant several tax SOPs for the sector. Jaitely said that corporate tax has been reduced from 30% to 25% for those with an annual turnover for less than Rs 50 crore.
For SMEs with turnover up to Rs 2 crore, Jaitley said that the presumptive tax will be lowered from 8% to 6%, lowered the financial burder, and boosting small merchants.
For startups, who have been clamouring for tax incentives, the finance minister announced that they will have to pay taxes for three out of seven years (up from five last year), only if they make profits.
Jaitley’s dole outs are in addition to what Prime Minister Narendra Modi presented on December 31. He announced an increase in the credit guarantees for this sector from Rs 1 crore to Rs 2 crore.
This cash-based informal sector constitutes over 90% of all enterprises and is the largest employment provider. Besides, the MSME sector is not yet ready to adapt the goods and services tax (GST) and with the new tax regime set to be kicked in by September could add to their woes.
The 12th Five Year Plan of the government underlined that a sum of Rs 24,000 crore was required to be directed to the sector for healthy growth. Public sector banks that are mandated to lend a certain proportion of their total loan kitty to the micro small and medium enterprises have urged the Reserve Bank of India to relax the credit rating parameters for these entities. Credit flow towards the MSME sector has been thinning due to a surge in non performing assets (NPA) in banks.
Most banks have been shying away from financing them due to stringent provisioning norms and default rate among the MSMEs have been rising. Commerce and industry minister Nirmala Sitharaman too has underlined the need to look into the problem.
The budget, however, did not highlight any measures to ease funding and fund pick-up. There were no measures for banks who worry about loan defaults.