Budget 2017: Tax sops to boost MSME ecosystem

02 Feb 2017 | By Supriya
Post-budget boost in MSMEs job creation

Finance Minister Arun Jaitley announced a variety of tax sops directed at the micro, small and medium enterprises (MSME) sector in the budget yesterday.

Budget sops were need of the hour since MSMEs were worst affected by surprise demonetization announced in November, 2016.

Budget sops included tax-rate reduction, increased credit guarantees and a 5-year spending plan for MSME to create healthy growth.

In context: Post-budget boost in MSMEs job creation

BackgroundMicro, Small, Medium Enterprises (MSME) need a boost

According to government reports, MSME sector created over 100 million jobs in 2016: it's the largest source of non-farm livelihood across India.

Post-demonetization, within 30 days, job losses of 35% and 50% slump in revenue was reported; another study projected 60% drop in employment by March 2017.

Further, credit flow to MSMEs had recently trickled down due to increased non-performing assets at banks.

02 Feb 2017Budget 2017: Tax sops to boost MSME ecosystem

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Big gains for small businesses

DetailsBig gains for small businesses

FM Jaitley announced tax reduction, from 30% to 25%, for companies whose annual revenue is upto Rs. 50 crore. This will benefit 95% MSME taxpayers.

Smaller traders with turnover less than Rs. 2 crore can opt for a presumptive tax scheme: FM proposed 6% on deemed profits instead of 8%.

Presumptive tax scheme will benefit those whose entire turnover is non-cash/digital means.

Levelling the playing field

Large corporates had multiple avenues to garner subsidies and rebates whereas MSME which drive 'velocity of economy activity' were paying taxes (over 30%) higher than corporates whose turnovers were ten-fold in comparison.

HowRange of benefits will trickle in

Reduction in tax rates for MSME will allow products to become more competitive and cost efficient.

Experts believe budget sops will improve prospects of small companies to raise funds: many have reportedly filed offer documents for IPOs.

The government's push to increase lending to the MSME sector will in turn then lead to job creation in rural and regional areas.

Boosting start-up ecosystem

The government is committed to boosting the start-up system and to encourage their growth, start-ups can now carry forward losses and will pay taxes in 3 years out of 7 years, only if they make profits.