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Budget Impact on MSMEs

The 2017 Union Budget, Presented by Finance Minister Arun Jaitley on Wednesday, was  broadly focused on 10 themes – the farming sector, the rural population, the youth, the poor and underprivileged health care, Infrastructure, the financial sector for stronger institutions, speedy accountability, public services, prudent fiscal management and tax administration for the honest.  

Budget 2017 left much to be desired for the MSMEs. The budget which was focused more on propelling the digital economy of the country gave some concessions to MSMEs while holding out on some of the major demands of the MSMEs.  Below information will help us understand the top announcements concerning Micro Small and Medium Enterprises made by Finance Minister Arun Jaitley in Budget 2017.  

The MSMEs (Ministry of Micro Small and Medium Enterprises) sector accounts for about 20% of the country’s GDP. It is also the largest employment provider in the country. Most MSMEs are exempted from maintaining detailed audit records. But after demonetisation, that might change. In the last Union Budget, the government raised tax exemptions for small business units with a turnover of up to Rs 2 crore from the earlier Rs 1 crore. However, PM Narendra Modi has assured these MSMEs that there will be no harassment caused to them on the basis of their previous balance sheets.

In continuation to above aspect in current year budget the finance minster has taken due care of MSMEs especially in order to make MSMEs companies more viable, income tax for companies with annual turnover up to 50crore is reduced to 25%. This will help MSMEs to blossomy like never before. Since this gives MSMES a reduction of 5% from the current applicable rate of 30%. A margin of 5% in the form of reduction in tax rate will pre-dominantly help and strengthen the MSMEs. Moreover the new and reduced tax regime will help SMEs to boost their capability to invest in R & D and develop  further technical competencies, which will go a long way in increasing their competitiveness on a global scale.  

This will benefit 96 percent (6.67lakh) of companies in India at the expense of the government forgoing Rs 7,200 crore of revenue.  The Concession, hoped the FM, will give a platform for MSMEs to become more competitive vis-à-vis larger companies and will also enable firms to migrate to a company format. In turn the there will be a more employment opportunities created under MSMEs, which help the government to fight with the rising unemployment challenges and threats. Increasing the standard of MSMEs to higher level by setting up new records.

Also for the businesses that have turnover up to Rs 2 crore, under section 44AD of the income tax act, income would be presumed to be 6% of the total turnover of the assesses, instead of 8% only if gross receipts are received through digital means.

This expected to lead to less cash and transparency as well as help in board basing the tax base. According to few experts, presumptive tax reduction from 8% to 6% for firms up to Rs. 2 crore turnover will bring even more transparency in MSMEs sector. These are welcome move for MSME Sector as they do not only get relief from burden of taxation, but also such initiative will encourage SME players to adopt digital means of doing business.

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