Govt initiatives dampen industrial houses

Relief for SMEs as tax for cos with annual turnover up to Rs 50 cr is reduced to 25%

Govt initiatives dampen industrial houses

 Even as the Budget was a big disappointment for large companies on the corporate tax front, Finance Minister Arun Jaitley sought to provide relief to the micro small and medium enterprises (MSME) sector that was hit hard by demonetisation.

He said income tax for smaller companies with annual turnover up to Rs 50 crore is reduced to 25%.  Some critics, however, said the whole point of cutting that tax rate should have been to make Indian companies competitive with other global competitors. They said it was the larger companies that are competing rather than the smaller ones.

Jaitley said the income tax for smaller companies with annual turnover up to Rs 50 crore is reduced to 25% in order to make MSME companies more viable and also to encourage firms to migrate to company format. The move is, however, not merely limited to MSMEs, but also to startups who earn up to Rs 50 crore.

As per data of Assessment Year 2015-16, Jaitley said, there are 6.94 lakh companies filing returns — of which 6.67 lakh companies fall in this category and, “therefore, percentage-wise 96% of companies will get this benefit of lower taxation."

He said, “This will make our MSME sector more competitive as compared to large companies. The revenue forgone estimate for this measure is expected to be Rs 7,200 crore per annum.”

The FM said, however, that the levy of Minimum Alternate Tax (MAT) — an issue that bothers small companies cannot be removed or reduced at present.

However, in order to allow companies to use MAT credit in future years, he proposed to allow carry forward of MAT up to a period of 15 years instead of 10 years at present.  MAT is at present levied as an advance tax. Although the plan for phasing-out of exemptions will kick in from April 1, the full benefit of revenue out of phase-out will be available to the government only after 7 to 10 years when all those who are already availing exemptions at present complete their period of availment.

Jaitley also proposed to extend till June 30, 2020 a concessional with-holding rate of 5% that is being charged on interest earned by foreign entities in external commercial borrowings or in bonds and government securities. This concession was to be available only till June 30 this year.

This benefit would also extended to Rupee Denominated (Masala) Bonds. The FM said the government gave income tax exemptions to startups with certain conditions last year.

“For the purpose of carry forward of losses in respect of such startups, the condition of continuous holding of 51% of voting rights has been relaxed subject to the condition that the holding of the original promoter/promoters continues. Also the profit-linked deduction available to the startups for three years out of five years is being changed to three years out of seven years.”

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