What MSMEs Got from Union Budget 2023-24: SMEStreet Report

Union Budget 2023 has proposed several measures to support Micro, Small, and Medium Enterprises (MSMEs) in India. Some of the key highlights include:

1. Credit Guarantee Enhancement Corporation: A new institution has been proposed to provide credit guarantee for MSMEs and enhance their access to credit.
2. Emergency Credit Line Guarantee Scheme (ECLGS 3.0): The government has extended the ECLGS scheme to cover MSMEs affected by the second wave of COVID-19.
3. E-Market Linkage for MSMEs: The government has proposed to set up an e-market linkage for MSMEs to enable them to reach a wider market and increase their sales.
4. MSME facilitation centers: The government has proposed to set up MSME facilitation centers across the country to provide end-to-end support to MSMEs.
5. Technology Upgradation: The government has proposed to allocate funds for technology upgradation and modernization of MSMEs.
6. MSME Export Promotion Scheme: A new scheme has been proposed to promote exports by MSMEs and increase their competitiveness in the global market.
7. National Recruitment Agency: The government has proposed to set up a National Recruitment Agency to simplify the recruitment process for MSMEs.

These measures are expected to provide a much-needed boost to the MSME sector and help it to recover from the impacts of the COVID-19 pandemic.

Promoting Timely Payments to Micro and Small Enterprises 

Sharing his observations on delayed payments as a challenge faced by MSMEs and how it has been addressed by the Finance Minister, Smt Nirmala Sitharaman in the latest Union Budget 2023-24,  Rajive Chawla, Chairman, IamSMEofIndia commented, “Section 43B of the Income Tax Act provides for certain deductions to be allowed only on actual payment. Further, the proviso of this section allows deduction on accrual basis, if the amount is paid by due date of furnishing of the return of income.”

In order to promote timely payments to micro and small enterprises, it is proposed to include payments made to such enterprises within the ambit of section 43B of the Act, Mr Chawla added, ”Accordingly, it is proposed to insert a new clause (h) in section 43B of the Act to provide that any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 shall be allowed as deduction only on actual payment.” 

However, it is also proposed that the proviso to section 43B of the Act shall not apply to such payments. Section 15 of the MSMED Act mandates payments to micro and small enterprises within the time as per the written agreement, which cannot be more than 45 days. If there is no such written agreement, the section mandates that the payment shall be made within 15 days. Thus, the proposed amendment to section 43B of the Act will allow the payment as deduction only on payment basis. It can be allowed on accrual basis only if the payment is within the time mandated under section 15 of the MSMED Act.

This amendment will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-25 and subsequent assessment years.

Sandeep Mohindru, mi-Exchange, Mynd Solution

Sundeep Mohindru,MD & CEO, M1XCHANGE expressed his views from MSMEs' perspective and stated, "The Budget Proposals conform to Government’s resolve to tread the path of fiscal stability while addressing issues of Growth and Job creation. In identifying 7 priorities towards achieving the Vision for ‘Amrit Kaal’, measures to make further progress towards financial inclusion of MSMEs, the budgetary announcement includes roll out of revamped credit guarantee scheme for MSMEs from April 2023, with additional infusion of Rs 9000 cr in the corpus. We await details to see if TReDS or Factoring gets a share in expected additional collateral free guaranteed credit of Rs 2 lac crore."

"Proposal for National Financial Information Registry is quite a significant one since a central repository of financial and ancillary information augurs well for consolidation of India’s Open Credit Enablement Network (OCEN). A robust OCEN is necessary for penetration of embedded financial products that are bread and butter for Fintechs that have a vital role in credit outreach and inclusion of hitherto untouched sectors into mainstream credit products," says Mr Mohindru.

Commenting on the Union Budget 2023-24, Hardika Shah, Founder & CEO, Kinara Capital says, “Absolutely positive and energized with today’s Budget announcement. FM Nirmala Sitharaman has delivered on all counts and added more light to India - already named as a Bright Star in today's world economy.”

“We applaud Union Budget 2023 extending the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme with an infusion of Rs. 9,000 crores, which will facilitate additional credit access of Rs. 2 lakh crores for MSMEs. This will bring stability to the scheme and promote financial inclusion and employment growth in the sector. The announcement of 1% reduction in cost of credit bodes well for last-mile lenders who extend financing to the underserved MSME sector. This is a positive move for the future of the scheme; however, the industry ask of scrapping the 18% interest rate cap on the scheme has not been clarified in this Budget. This is required as it will further deployment to the micro-MSMEs and improve last-mile utilization of the funds allocated under the scheme. We hope this is implemented when the new CGTMSE goes live on April 1, 2023,” Hardika also said, “The acknowledgment of PAN as a common business identifier as well for all digital systems is a laudable initiative as it will help in integrating financial information under one single entity. It will significantly reduce the compliance burden on small businesses that do not have the resources to maintain a large team who can maintain multiple numbers and filings. The plan to create an entity Digi locker which is a secure mobile-friendly free service with the ability to store and share documents online securely to regulators, banks and other business entities as well as the move to set up a National Financial Information Registry will remove the dependence on paper trail and fasten timely access to credit.”