What Budget 2020 has in store for MSMEs and Start-Ups
The union budget 2020 was addressed by the Finance Minister, Nirmala Sitharaman, on Saturday, the 1st of February. Various tax exemptions and an overview of the economic progress was covered in the Budget. Various perks and incentives were introduced for small scale businesses and start-ups. Let’s take a look.
- Debt Funding
A scheme was announced to subordinate debt to MSMEs. The FM asked banks to extend restructuring MSME Non Performing Assets for one more year, postponing the deadline to March of 2021. In addition to this, it was announced that a 900Cr. debt funding would be allocated to the MSME sector.
- App-Based Invoice Financing Loans Platform
An app-based invoice financing loans platform will be launched. This will obviate the problem of delayed payments and consequential cash flow mismatches for the MSMEs. Also, ramifications will be made to enable Non banking Financial Companies to extend invoice financing to MSMEs.
- Government e-Marketplace
The Government e-Marketplace (GeM) is advancing to create a Unified Procurement System in India to facilitate a single, unified platform for procurement of goods, works and services. This offers a great opportunity for Medium, Small and micro Enterprises (MSMEs), The FM stated that 3.24 lakh vendors are presently carrying on business on this platform and its proposed turnover is expected to reach 3 lakh crores.
- Ease in Compulsion for Auditing
At present, businesses with a turnover of more than Rs. 1 crore mandatorily have to get their books of accounts audited by an accountant. In order to decrease the burden on small retailers, businessmen, and shopkeepers, Sitharaman proposes to raise the turnover threshold for audit five-fold, from Rs 1 crore to Rs 5 crore. Although, this increased limit would apply only to those businesses that carry out less than 5% of their business transactions in cash.
- Working Capital
A major issue for the MSMEs remains working capital credit. Sitharaman proposed to introduce a plan to provide entrepreneurs of MSMEs with subordinate debt. This subordinate debt will be provided by banks and would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE). The corpus of the CGTMSE would accordingly be augmented by the government.
The financial and work related stress a start-up entrepreneur faces is not easy to cope with, from raising capital to devoting long, strenuous hours to work. The Union Budget for 2020-21, addressed by Nirmala Sitharaman certainly created some provisions to alleviate the problems start-up owners face. Here’s a few highlights of the provisions made in favour of start-ups.
The government proposed to introduce early life funding, which also includes a seed fund to support creation, ideation and nurturing of early stage Startups.
- Ease in Taxation
During their early years, Employee Stock Ownership Plan (ESOP) is a pivotal component of compensation for startup employees. At present, ESOPs are taxable as perquisites at the time of enforcement. This leads to a cash-flow problem for the employees who do not sell their shares instantly and continue to hold the same for a longer period of time. In order to uplift the startup ecosystem, the FM has proposed to reduce the weight of taxation on the employees by deferring the tax payment by five years or until they quit the company or when they’ve sold their shares, whichever is earliest.
- Fiscal Benefits
Startups with a turnover of under Rs 25 crore were allowed a deduction of 100% of profits for three consecutive assessment years out of seven years. In order to extend this benefit to larger startups, Sitharaman proposed to increase the turnover limit from existing Rs 25 crore to Rs 100 crore. Moreover, considering the fact that in the initial years, a startup may not have adequate profit to avail this deduction, the FM decided to increase the period of eligibility for claim of deduction from 7 years to 10 years.
All in, the announcements made in the 2020 Union Budget is expected to usher a boon for small scale enterprises and uplift the economy.