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15 May 2020
COVID-19 — Atma Nirbhar Relief Package - FM Announcements

Pursuant to PM Modi’s announcement for the need of developing India into a ‘self-reliant’ country, Finance Minister Nirmala Sitharaman made a slew of announcements on 13 May 2020.

While announcements ranged from the real estate sector, provident fund regulations, NBFCs, DISCOMs, and direct tax measures, a major focus of the reforms was on MSMEs. The MSMEs have been considered to be the backbone for the government’s ‘self-reliant’ project.

Some of the key measures announced are briefly highlighted hereunder:
 
 
MSME
  • Expansion of the scope of the definition of MSMEs under Micro, Small and Medium Enterprises Development Act, 2006 (MSMED, 2006), thereby enabling more enterprises (be it company, LLP, partnership/proprietorship firm, etc.) to be eligible for such benefits. A brief comparison of the maximum threshold limits under the existing and proposed definition is given hereunder:
Amounts in INR
Criteria Micro Small Medium
Existing Proposed Revision* Existing Proposed Revision* Existing Proposed Revision*
Investment Manufacturing- 2.5 million; Service- 1 million 10 million Manufacturing- 50 million; Service- 20 million 100 million Manufacturing- 100 million; Service- 50 million 200 million
Turnover N.A. 50 million N.A. 500 million N.A. 1 billion

* Applicable to both manufacturing and service enterprises, thereby removing differentiation in criteria

Now, both investment and turnover criteria would need to be fulfilled in order to claim benefits available to MSMEs.
 
Other Benefits
  • Floating of global tenders for a value of up to INR 2 billion by the government to be discontinued;
  • 100% central government guaranteed term loan for up to 20% outstanding criteria as on 29 February 2020 to be extended to MSMEs having standard accounts, outstanding of INR 250 million and a turnover of up to INR 1 billion;
  • Provision of INR 200 billion subordinate debt to stressed and NPA MSMEs. Government to infuse INR 40 billion in Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). Banks to provide the subordinate-debt to promoters of equivalent to 15% of their existing stake in the unit subject to a maximum of INR 7.5 million, who will then infuse equity in the unit;
  • Provision of INR 500 billion scheme for equity infusion in MSMEs through Fund of Funds. The blueprint of the scheme to be rolled out soon;
  • The facility of e-market linkage to bring sellers and consumers at one place as a replacement for trade fairs and exhibitions to be enabled;
  • MSME receivables from Government and Central Public Sector Enterprises to be released in 45 days.
Direct Tax
  • 25% reduction in withholding tax (WHT) rates for non-salaried resident taxpayers, effective from 14 May 2020 to 31 March 2021, thereby enabling WHT rates to range from 0.75% to 22.5%, provided PAN is furnished by them;
  • Extension in due dates of income tax returns and audit reports for FY 2019-20. Revised due dates for FY 2019-20 would be-
    Particulars Due Date for Audit Report Due Date for Tax Return
    Transfer Pricing Cases 31 October 2020 30 November 2020
    Non-Transfer Pricing but Tax/Other Audit Cases 31 October 2020 30 November 2020
    Other Cases N.A. 30 November 2020

  • The due date for payment under Direct Tax, Vivad se Vishwas Scheme, 2020 has been extended till 31 December 2020 without making any additional 10% payment;
  • The extension of statutory time barring date for scrutiny and best judgment assessments for AY 2018-19 and Transfer Pricing cases for AY 2017-18 from 30 September 2020 to 31 December 2020. Similarly, statutory time barring threshold for income escaping assessments for AY 2013-14 barring on 31 March 2021 has been extended till 30 September 2021**;
  • The pending income tax refunds to charitable trusts, non-corporate businesses, and other professions including, proprietorship, partnership and LLPs, along with cooperatives to be issued immediately.
** The measure was part of FM’s announcement, but it wasn’t a part of the Press release dated 13 May 2020.
Other Measures
  • An extension of validity of government support for employer and employee share of PF contribution under Pradhan Mantri Garib Kalyan Package (PMGKP) to be extended to August 2020;
  • A reduction in PF contribution of both employer and employee share from 12% to 10% for employees other than covered under PMGKP;
  • 100% guarantee by the Indian government for investment in the investment grade debt securities of NBFCs, Housing Financing Corporations, and Micro Finance Institutions; INR 900 billion liquidity injection for DISCOMs via Power Finance Corporation and Rural Electrification Corporation;
  • 6 months’ extension in contracts with central agencies, such as Railways, Ministry of Road Transport and Highways and CPWD including in respect of EPC and concession agreements;
  • State Governments advised to treat COVID-19 as an event eligible for ‘Force Majeure’ under RERA, 6 month’s extension to registration and completion date to all real estate dates, with authority to States to further extend it by 3 months.
Our Comments

The above announcements would surely give a boost to the various sections of the society, thereby enabling higher disposable income in their hands, which is expected to be reinvested and generate returns for the economy. Entities can assess their eligibility and may get registered as MSMEs to avail of various benefits.

While the blueprint of the above announcements is yet to be released via legislative amendments, the following points need to be considered:

  • Whether interest for late filing of return would still be levied, as has been the norm in recent years, on account of extension of due dates;
  • A reduction in WHT rates does ensure liquidity, however, the taxpayers would have to gauge their advance tax liability quarterly so as to save on the interest costs;
  • Evaluate the status of outstanding demands and file the appropriate application for deletion thereof and release of refund.

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