Tax Benefits for SMEs in India

Article By Suvodeep Das, Vice President, Marketing, Sodexo BRS India

Often referred to as the backbone of the Indian economy, the MSME sector plays a key role in sustaining the economic growth of the country. Keeping in mind the importance of the sector both as a driver of the economy and as the second largest employer, the central government has initiated various schemes and measures to allow MSMEs easier access to funds, and modernize to become more competitive in the market. Over the last few years, numerous incentives and schemes have been launched, including special incentives for women entrepreneurs, schemes ensuring the quality of products, especially those meant for exports, technology upgradation, incubation, credit linked capital subsidy, UID linked schemes which facilitate ease of receiving subsidy etc.

Tax Benefits are the biggest Sops

One of the best and easiest ways of providing assistance to SMEs is through tax-related benefits. With the presentation of the budget last year, the government made clear its intention towards the SME sector.

1. Benefiting nearly 96% of the companies, the 5% reduction in corporate tax rates from 30% to 25% for domestic SMEs with an annual turnover of Rs 50 crores in the year 2015-16, was aimed not only at providing tax relief to companies, but also at incentivising partnerships firms to move to the structured form of business by transforming into limited companies.
2. By listing on the SME exchange, SME companies benefit from easier access to capital and equity finance, and higher visibility while enjoying tax benefits such as 0% long-term capital gains tax and 15% short-term gain tax.
3. The timeframe for carrying forward MAT (minimum alternate tax) was raised to 15 years from 10 years, helping business enterprises to further reduce their tax liability in the future.
4. Reduction in presumptive tax by 2% for companies with a turnover of up to Rs 2 crores reduced the financial burden on them. 

Benefits of GST for SMEs:

Implementation of GST, though considered cumbersome and tedious by most SMEs, will actually benefit them in the longer run. The replacement of multiple taxes by a single, uniform one not only removes the cascading effect of multiple taxes but also makes it easier to administer and comply with.

1. GST allows SMEs opportunities to access a wider market country-wide, bringing both out-of-state player and local seller on par through a seamless flow of tax credits.
2. Ease of business is enabled by the application of the unified GST, which has replaced the multiple taxes levied at different by different authorities.
3. GST improves profitability by widening the scope of input credits to include services also.
4. It also makes compliance easier through a reduction in the number of returns and switchover to the online regime. Businesses with turnover less than Rs 20 lakhs can have multi-state operations without the need for GSTN registration. Also when turnover is less than Rs 1.5 crores, only quarterly returns need to be filed.
5. The limit for the composition scheme has been raised to Rs 1.5 crores. Though subject to some restrictions, the scheme is highly beneficial for local businesses that do not deal in restricted products or sell in other states.

While GST may require an initial investment in technology and putting in place procedures to ensure compliance, GST, in the long run, is expected to be highly beneficial to SMEs, increasing the competitiveness and pushing growth.

With its focus on Make In India and Startup India, the central government is gearing up to launch newer schemes and initiatives for SMEs, making them more efficient, competitive and ready to take on a wider market. It is now up to business enterprises and innovative individuals to take up the challenge, adapt, gear up and benefit from schemes meant for their sustained growth and enhanced profits.