New Delhi: The Union Budget 2017-18 has proposed to reduce income-tax rate for small businesses from 30 per cent to 25 per cent, offering a huge relief to the sector which was hit hard by cash crunch resulting from demonetisation announced by the government on November 8.
The sop will be available to firms with annual turnover of up to Rs 50 crore, which would benefit more than 90 MSMEs, according to the government.
“In order to make MSME companies more viable and also to encourage firms to migrate to company format, I propose to reduce the income tax for smaller companies with annual turnover upto 50 crore to 25 per cent,” finance minister Arun Jaitley said in his Budget speech.
“As per data of Assessment Year 2015-16, there are 6.94 lakh companies filing returns, of which 6.67 lakh companies fall in this category and, therefore, percentage- wise, 96 per cent companies will get this benefit of lower taxation,” Jaitley stated.
Mr Jaitley added, “This will make our MSME sector more competitive as compared to large companies.” The government will lose Rs 7,200 crore in a revenue a year because of the tax concession.
Most of the MSMEs operate in the informal sector. However, given the government’s stepped-up focus on taking the country towards a cashless economy following demonetisation, they will have to become part of the formal sector and ,as a result, their compliance with labour and taxation laws will come under scrutiny. This possibility has left majority of MSMEs scared.
The Federation of Indian Micro, Small and Medium Enterprises (Fisme) has suggested that the government assure MSMEs that they would not be prosecuted for non-compliance with labour and taxation laws in the past, “While most of the entrepreneurs can be persuaded to migrate to formal economy, the biggest hurdle in the way is the fear of persecution both in future and of non-compliance in past,” Fisme president Sangam Kurade wrote to Prime Minister Narendra Modi recently.
