Relief measures in view of the COVID-19 outbreak

The Finance Minister, Nirmala Sitharaman announced relief measures for SMEs in view of the COVID-19 outbreak, in the areas of Income Tax, GST, Customs, Corporate Affairs, the Banking Sector and Commerce.

Income Tax

  • Last date for IT returns extended from Mar 31, 2020 to Jun 30, 2020.
  • PAN and Aadhaar linking date has been extended from Mar 31, 2020 to Jun 30, 2020.
  • No additional 10% penalty, if the payment of the Direct Tax under Vivad se Vishwas scheme is made by June 30, 2020.
  • Due dates for notices, intimations, approval or sanction orders, investments in saving instruments, investments for rollover benefit of capital gains under Income Tax Act,  Wealth Tax Act, Black Money Act,  Prohibition of Benami Property Transaction Act, CTT Law, Equalization Levy Law, STT Law, Vivad Se Vishwas Scheme, where the time frame is expiring between Mar 20 to Jun 29, 2020 to be extended to Jun 30, 2020.
  • Interest rate on delayed payments made for advanced tax, TDS, self-assessment tax, TCS, STT, CTT between Mar 20 and Jun 30, 2020 to be reduced from 12% to 9%. Also, no penalty or late fee will be charged for delay during this period.
  • Pending income tax refunds up to ₹5,00,000 to be issued.

GST

  • No late fee, interest or penalty to be charged from companies having annual turnover less than ₹5 crore if they file return by Jun 30, 2020. Companies with turnover more than ₹5 crore will incur interest at 9% per annum instead of 18%.
  • Date for filing GST annual returns extended till the last week of Jun 2020.
  • Due date for issue of notice or approval/sanction order, filing of appeal, submitting return, or any other GST compliant document where the time limit is expiring between Mar 2020 and Jun 29, 2020 has been extended to Jun 30, 2020.
  • Payment date under Sabka Vishwas Scheme has been extended to Jun 30, 2020.
  • Pending refunds for goods and services tax (GST) and customs to benefit 100,000 businesses.

Customs

  • 24X7 custom clearance till the end of Jun 2020.
  • Due date for issue of notice, approval/sanction order, submitting applications or reports, or any documents compliant with the Customs Act expiring between Mar 20 and Jun 29, has been extended till Jun 30, 2020.
  • Pending refunds for customs along with income tax, goods and services tax (GST) worth ₹18,000 crore to be issued.

Financial Services

  • For the next 3 months, debit cardholders can withdraw cash from any other banks’ ATM for free.
  • Minimum balance requirement fee is waived of.
  • Digital charges for trade transactions have been reduced.
  • For MSMEs, the FM urged banks to increase public lending.
  • The moratorium on payment of loan instalments for the next 3 months will not affect the credit rating.
  • Interest on working capital deferred for 3 months will support businesses meet their immediate needs.
  • RBI has enhanced state government’s short-term liquidity needs and increased WMA limit by 30% for all States/UTs.
  • RBI has relaxed export repatriation limits from nine months to 15 months.
  • SBI announced an emergency credit line to meet any liquidity mismatch for its borrowers, along with the additional liquidity facility COVID-19 Emergency Credit Line (CECL) wherein funds up to ₹200 crore will be available till June 30.
  • Oriental Bank of Commerce under the COVID19 Emergency Credit Facility will help SMEs meet temporary liquidity requirement.
  • United Bank of India launched UBI COVID-19 Emergency Credit Facility for its existing MSME, agriculture and other business segment borrowers.
  • SIDBI to provide collateral-free loans up to Rs 50 lakh to MSEs manufacturing medical supplies under its SIDBI Assistance to Facilitate Emergency (SAFE) scheme

Corporate Affairs

  • No additional fees shall be charged for late filing of any document, return, statement during a moratorium period from Apr 1 to Sep 30, 2020.
  • Applicability of Companies Auditor’s Report Order will be made applicable from the next financial year instead of 2019-20 as notified earlier. It will ease the burden on companies and their auditors.
  • Newly incorporated companies have been given an additional time of 6 months to file a declaration for Commencement of Business.
  • Non-compliance of minimum residency period of any Director for at least 182 days shall not be treated as a violation.

Budget 2020 Proposals: New IT slabs, Increased FPI limit, DDT gone

Budget FY 2020–21 was presented against the backdrop of consistent weak growth for the last 8 consecutive quarters wherein the GDP growth rate has persistently dipped. Concerns leading to subdued spirits in the economy have not been limited to a single sector. Moreover, the tax collections for FY 2019–20 from corporate tax, income tax, GST, etc. have been the weakest in a decade. So, the overarching pressure is to contain fiscal deficit, which is spiralling to 3.8% of GDP for FY21. Given this, the space for spending for FY21 is rather limited.

This year’s budget, therefore, focuses on opening up capital markets and making some changes to the tax structure. With regards to this, a few key proposals made by the Finance Minister are:

  • Increased FPI limit for corporate bonds: To promote greater participation by the Foreign Portfolio Investors (FPI), the Government proposed to increase the investment limit for them from 9% to 15% of outstanding stock of the corporate bonds.
  • Abolition of DDT in the hands of the company: Dividend Distribution Tax (DDT) has been removed from the companies and moved into the hands of recipients. Currently, as per section 115o of the Income Tax Act, an additional tax of 15% (plus surcharge and cess) is required to be paid on any amount declared, distributed or paid as a dividend by domestic companies. Such dividend income is exempt under section 10(34) of the Act in the hands of the shareholders.
  • Significant changes in the income tax structure: While tax rate has been cut in lower income slabs up to ₹15 lakh, standard deductions have been taken away in a bid to simplify the tax structure. As per the finance minister, this will result in ₹400bn of tax revenues being given up. Further, increasing the deposit insurance from ₹0.1mn to ₹0.5mn is a step towards protecting the small saver.
  • SWF investments in infrastructure: 100% tax exemption on income on investments (dividend, interest, capital gains) in the infrastructure sector by Sovereign Wealth Funds (SWF) was proposed in the Union Budget. This is likely to boost the infrastructure sector by facilitating the much-needed capital.

Union Budget 2020: What’s in it for MSMEs?

Finance Minister Nirmala Sitharaman presented the Union Budget 2020 in Parliament on Feb 1, 2020 and announced several schemes and measures for the benefit of micro, small and medium enterprises (MSMEs). She stated that the MSME sector is of utmost significance to keep the economy running smoothly.

Measures for MSMEs:

  • Audit turnover threshold increased to ₹5 Cr
  • National Logistics Policy to be implemented
  • ₹900 Cr debt-funding for MSMEs allocated
  • App-based invoice financing loans product to be launched
  • ₹2.83 lakh crores allocated for agro and allied sectors
  • Nirvik Scheme announced for higher insurance cover for exports and tax disbursement
  • Intellectual property creation and protection process to be streamlined

Increased audit threshold: The turnover threshold for audit has been increased from the ₹1 to ₹5 crores for small retailers and traders who form the majority of the MSME sector. This is applicable only to those businesses who carry out less than 5% of their transactions in cash in order to encourage a less cash economy.

National Logistics Policy: The soon-to-be-launched National Logistics Policy will aim to create a single window e-logistics market to make MSMEs more competitive. This scheme will have a four-year implementation period with a budget of ₹1480 crore.

Debt funding and GST: Sitharaman asked banks to extend restructuring MSME NPAs till March 2021. She mentioned that over five lakh MSMEs have benefitted from debt restructuring and allocated ₹900 crore debt-funding to the MSME sector in this Union Budget. With respect to GST, a simplified return format is being introduced from April 2020 onwards.

App-based invoice finance: To avoid issues of delay in payments and substantial cash flow mismatches for the MSMEs, amendments to the Factoring Regulation Act 2011 were proposed. As per this, NBFCs will be able to offer invoice financing to MSMEs through Trade Receivables Discounting System (TReDS) via an app.

Agro and allied sectors: ₹2.83 lakh crores were allocated for agro and allied sectors including irrigation, rural development, and Panchayati Raj in the Union Budget 2020. Close to 35 lakh farmers will be helped by setting up of solar pumps in order to make their barren lands productive. The finance minister also committed an additional 152 million metric tonnes of warehousing facilities.

Nirvik Scheme for exporters: The Nirvik Scheme is designed to provide higher insurance cover, reduce the premium for small exporters, and to simplify the procedure for claim settlements. This scheme will also facilitate export tax disbursement which will make loans easily accessible for exporters. Under this scheme, the insurance guaranteed could cover up to 90% of the principal and interest of loans, along with pre- and post-shipment credit.

Digital platform for Intellectual Property Rights (IPR): For seamless application and capture of Intellectual Property Rights (IPR), a digital platform will be setup. As per the Finance Minister, it will help solve the complexities, and contribute to modernisation in the field of intellectual property.