The decrease of income tax by 5 percent to the SMEs and the startups can be viewed as the good beginning of the year for the Small and Medium Enterprises (SMEs) which had been reeling under the sheer pressure of the demonetization move and the possibility of the GST announcement. This cut in the income tax from previous 30 percent to the new 25 percent is expected to bring rapid growth and development of around 96 per cent of the Indian SMEs and the emerging startups. The presumptive reduction of tax by 2% accounts to six per cent that means that the SMEs and the startups have something to cheer about as the SMEs have already been beleaguered by the demonetization move.
With the announcement of the Union Budget 2017-18, the Finance Minister, Mr. Arun Jaitley has claimed that the MSMEs that have revenues or annual turnover of less than 50crores INR will be granted the provision of the reduction in the corporate tax rate from 30 per cent to 25 per cent. Additionally, the businesses that have a turnover of around 2crores INR, under the section 44D of the Income Tax Act, the revenue would be presumed to be around 6 percent of the total turnover of the assessment which was earlier 8 per cent. This provision would be applicable only if the gross recipients are received through the means of digitalization.
With such provisions, less cash and enhanced transparency in addition to the broadening of the tax base is expected to get enhanced. According to the CEO of Loantap, Satyam Kumar, the presumptive reduction of the tax from 8 per cent to 6 per cent for the SMEs and the startups with around 2crores INR is expected to bring greater transparency in terms of the operation of the MSME sector.
The Founder and CEO of Power2SME, R Narayan, said that these moves are quite welcoming to the growth and development of the MSME sector as these sectors do not get relief from the burden of taxation. The SME sectors and the startups will also get encouraged through these initiatives as they will learn to adopt the digital means of operation and the enabling the distribution of the products and services on the online marketplace provided by the government known as the e-marketplace.
Satyam Kumar has claimed that large corporates that have been fueled by the sheer investment have been garnering various rebates and subsidies including the provision of land allotment on a preferential basis. The steep reduction of the income tax by 5 percent will serve as a big boost to the SME sector and will bring about direct incentives to the SMEs and the startups.
To keep the spirit of the manufacturing and effective distribution of the goods and services, the Finance Minister has also announced in the Union Budget 2017-18 the increase in the allocation towards the incentive schemes like EDF (Electronic Development Fund) and M-SIPS (Modified Special Incentive Package Scheme) to around 745 crores INR during the annual year 2017-18 that will encourage the existing electronics players and would also make some golden space and opportunity for the new players.