Are you aware how tax provisions can impact MSMEs & startups?

Are you aware how tax provisions can impact MSMEs & startups?

It won’t be wrong to say that micro-small and medium enterprises have provided much relief to the country during the time of recession.

Not only this, they have been holding a high amount of share in the economic structure of the country since many years.

Realizing the importance, the 2019-20 budget had introduced many new initiatives and tax provisions which can handle the start-up and MSMEs problems that have been prevailing since so long. Few of them are listed below.

For Micro, Small and Medium Enterprises [ MSMEs ]

  1. Corporate tax extension

    In the previous budget for the financial year 2016-17, the corporate tax rate was 25% for the companies which held the annual turnover of 250 crores. There was disparity in the taxation and this provided a relief as the tax has been extended to companies which hold an annual turnover of 400 crores.

    Many companies have been relieved and relaxed due to the tax extension and they can easily work up to the level and pay tax later when the turnover goes above or remains at 400 crores.

  2. Payment platform 

    The creation of payment platforms for filing of bills and payments can help avoid delays. While reading out the budget, the Finance Minister had mentioned about the same so that the MSMEs can benefit and avoid the confusion and delay in the payment methods.

  3. Pradhan Mantri Karam Yogi Maandhan scheme

    The pension benefit has been extended to about 3 crore shopkeepers and retailers if their annual turnover is less than 1.5 crore.

    This will help a lot of shopkeepers to avail the benefit and plan their future without any worries. Also, the registration is very simple as it requires bank account and Aadhaar card’s number including a self-declaration.

  4. Make In India

    Particular emphasis will be given to micro, small and medium enterprise so that they can grow and continue to contribute their share to the country. It has been mentioned in the Union Budget that MSMEs will be seen closely so that they can benefit to the utmost level.

  5. SFURTI- Scheme of Fund for Upgradation and Regeneration of Traditional Industries

    Under this scheme, new clusters will be formed so that around 50,000 artisans who mainly come from Khadi, bamboo and other clusters can grow, and contribute to the economy chain.

  6. Agro-rural industry sector

    There is a plan to develop 75,000 entrepreneurs who acquire or have the required skills in the agro-rural industry. This will not only benefit the skilled entrepreneurs but also help the country to have growth from the most important part.

For Startups:

  1. Tax holiday for 3 years

    During the initial years of startup, the present government has got an amazing plan where the startups registered after April 1, 2016 will get a tax rebate on profit for 3 years and it can be in a block of 7 years .

    This enables the startups to save up their earnings or capital for future and present investment. Besides, the rebate only applies if the startups don’t exceed the turnover limit of 25 crore.

  2.  Exemption from tax above the fair market value

    The tax which can be levied on investments above the fair market value in case of an eligible startups, will be exempted. These investments include various groups such as funds of family that are not registered as venture capital, resident angel investors, and others.

    This can help the startups to scale up their businesses without worrying about the tax levied on their investments above the fair market value.

  3. Tax exemption on long-term capital gains and Tax exemption to individuals/HUF on long-term capital gains from equity shares

    To relax the burden on startups, Section 54 EE has been included in the Income Tax Act as a new one. An eligible startup will be exempted from long-term capital gains only if the investments are a section of fund notified by the Central government (It should be within a period of 6 months from the date of transfer of assets). Besides, the maximum amount of investment should not be more than 50 lakh and should be invested in a span of 3 years. The amount will be taxable if the investor withdraws it before 3 years.

    A provision that comes under Section 54GB permits the tax exemption on long-term capital gain. This happens only if the residential property has been sold to invest in SMEs for their expansion and growth. Besides, it should fall under the criteria defined by Micro, Small, and Medium Enterprises Act, 2006.

    Presently, it has been amended for eligible startups as well. But, the tax exemption on long-term capital gains will be applied only if an individual or HUF invests to subscribe to 50% or more equity shares of the startup. Additionally, the shares shouldn’t be sold or transferred for 5 years, the startup should also use the amount invested, and shouldn’t transfer the asset for 5 years.

These are the main impacts of tax provisions which micro, small, and medium enterprises including startups will experience. If your company falls under the category mentioned above then you can easily benefit from these.

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2020-02-12T12:19:01+00:00

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