Wednesday's budget made some important sector specific announcements for MSME sector. The reduction of income tax rate to 25% (from the existing 30%) for smaller companies within an ambit of a INR 50 crore turnover has been announced. This 5% tax respite will make a huge difference in the revenue chains of the MSMEs and we will also witness a significant shift from proprietorship registrations to private limited/ LLP registered firms creating a more favorable working environment for MSME players.
Other measure targeted towards MSMEs focus on the businesses with turnover up to Rs 2 crore and for them, a reduction has been announced in the existing rate of deemed profit of 8% under section 44AD of the Income Tax Act to 6% in respect of the amount of total turnover or gross receipts received through banking channel / digital means. Additionally, the government’s decision to double the lending target of banks under MUDRA Yojna to INR 2.44 lakh crores will further boost the financial morale of the MSME sector.
By altering the taxation policies and improving lending facilities, the government aims to provide a level playing field to MSME players and will also give the much needed boost to the MSME sector. Also, the finance minister has announced a fiscal deficit target of 3.2% for the financial year 2017-18 up from the goal of 3% set earlier, which will give more flexibility to RBI to bring down the interest rates.
In continuation of its (government’s) aim to make India a global manufacturing hub, the government has further announced to increase the allocation and incentives of schemes like M-SIPS and EDF to Rs745 crore for electronic manufacturers in India. On the other hand, FM also announced that increased digital transactions will help MSMEs with easy access to formal credit. All these moves clearly re-emphasize the government’s focus on its flagship campaigns Make in India and Digital India.
We welcome the government’s budgetary announcements targeted to empower the MSME sector. The implementation of these announcements are projected to positively impact about 96% of MSME units (both manufacturing and service) in India. These enhancements will definitely result in more number of MSMEs joining the formal economy.
India has already moved up in the value chain, as the 6th largest manufacturing country from its previous 9th position. Today’s budgetary announcement will further strengthen the growth story. However, I feel that there are still many changes required in the sector in order to tap its full potential.
[Disclaimer: The views expressed in this article are solely those of the authors and do not necessarily represent or reflect the views of Trivone Media Network's or that of SupportBiz's.]