Union Budget 2018: Govt cuts income tax to 25% for MSMEs with up to Rs 250 crore annual turnover
This will benefit the entire MSMEs which account for 99% of companies filing tax returns, said finance minister Arun Jaitley.Updated: Feb 01, 2018 13:55 IST
To address the problems faced by micro small and medium scale enterprises (MSMEs), the Union Budget presented on Thursday reduced the income tax to 25% for small companies with annual turnover of up to Rs 250 crore.
In the last year’s budget, the government provided tax sops to make MSMEs more viable, recognising their importance in economic activity and generating employment. It had reduced the income tax to 25% for small companies with annual turnover up to Rs 50 crore. This is estimated to have benefited more than 6.67 lakh companies, with 96% of all the companies filing tax returns.
“This will benefit the entire MSMEs which account for 99% of companies filing tax returns,” finance minister Arun Jaitley said on Thursday, adding the revenue foregone for 2018-19 would Rs 7,000 crore.
Jaitley said it would leave companies with higher investible surplus which in turn would create more jobs.
“The FM’s announcement of application of 25% tax rates to MSME with a new threshold of Rs 250 crore while welcome is still narrow in impact on the economy and business. Still lot more to be done to increase India’s competitive advantage as the headline tax rates are falling all across the world, with now even USA joining and leading the race,” said Milind Kothari, managing partner, BDO India.
The budget also earmarked Rs 3 trillion under the Pradhan Mantri Mudra Yojana or Mudra scheme. In addition, Jaitley also allocated Rs 3,794 crore for credit support to MSMEs.
The government will also announce measures to address the issues of non-performing assets (NPAs) and stressed accounts of MSMEs.
This assumes significance given 32% share of MSMEs in India’s economy. According to the National Sample Survey(NSS) 73rd round, there were around 634 trillion unincorporated non-agriculture MSMEs in India in 2015-16 providing employment to 11.10 crore workers.
Aimed at easing cash flow challenges, these announcements come in the backdrop of demonetisation in November 2016 and the introduction of the goods and services tax in July 2017.
Seized of the problems, the Economic Survey released on Monday had said, “The MSME sector faces a major problem in terms of getting adequate credit for expansion of business activities. Latest data on credit disbursed by banks shows that out of a total outstanding credit of Rs 26041 billion as in November 2017, 82.6% of the amount was lent to large enterprises. The MSME received only 17.4% of the total credit outstanding.”
Jailtey said after demonetisation, enormous amount of information was generated that would help in addressing the issues of MSMEs, including enabling easier credit. The MSME sector had seen formalisation after GST and demonetisation, the minister said.
He also announced bringing on board state-owned banks on the MSME bill discounting platform and link it with the GST network.