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On 1 February 2024, the Union Finance Minister Nirmala Sitharaman presented the Interim Budget 2024 in the Lok Sabha. The government recognised the MSMEs as an important policy priority and emphasised the need to provide MSMEs with credit access, appropriate training, and digital technologies for staying compliant and growth. The unveiling brought forth a series of pivotal tax reforms and compliance changes designed to provide tax relief to the MSME sector and foster their growth. The move marks decisive steps to simplify the tax structure and MSME compliance mechanism and provide relief to the sector.

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The allocation for the sector is similar to what it received the previous year (i.e., ₹22,137.95 crores) though rural industries, coir sector, cluster development show some increase in budget allocation (Source: The Hindu). There has however not been any new announcement on GST reforms for small businesses or access to credit. We take a closer look at the tax reforms and compliance for MSMEs as per the Interim Budget 2024.

Also read: Interim Budget 2024 – Sustainability, EVs and green initiatives

Overview of tax reforms for MSMEs

Direct tax:

There are no changes in the direct and indirect tax structures and import duties. That is, for individual tax payers, there will be no tax liability for income up to ₹7 lakhs.

Presumptive tax for retail business:

In continuation from the previous year’s Budget (2023), the MSME sector and professionals are provided tax reliefs under the presumptive taxation scheme.

The threshold for presumptive tax for retail businesses is increased to ₹3 crores (from ₹2 crores). In addition, the threshold for professionals eligible for presumptive tax has been increased to ₹75 lakhs (from ₹50 lakhs). This step is expected to enable many small retail businesses to expand and stay competitive.

Old threshold New threshold
Section 44AD of Income Tax Act (retail small business) ₹2 crores ₹3 crores
Section 44ADA of the Income Tax Act (professionals like doctors, lawyers, etc.) ₹50 lakhs ₹75 lakhs

Corporate tax rate:

There has also been a decrease in the corporate tax rates. Corporate tax rate has been reduced to 22% from 30% for existing domestic companies and to 15% to specific new manufacturing companies.

Corporate tax rates
Old regime 30%
New regime 22% (decreased)
For certain new manufacturing companies (new regime) 15%

Central to these tax reforms is the reduction in corporate tax rates for MSMEs. It’s not just a fiscal adjustment but a means for these businesses to reinvest their savings into expansion, innovation, and development. It’s expected that as a ripple effect of these measures there will be higher employment generation and robust environment for growth and healthy competition.

Also read: Manufacturing sector in India

Indirect taxes

The Interim Budget has brought some relief to the Micro, Small and Medium Enterprises through its targeted tax benefits, especially with GST relaxations. These measures aim to simplify MSME compliance and foster technology and digital adoption. There are also specific incentives designed to encourage MSME tax compliance and nurture a financially healthy business ecosystem.

GST simplification – Impact on MSME

The Interim Budget also highlighted how GST simplification (Goods and Services Tax) has facilitated ‘One Nation, One Market, One Tax’ system resulting in the deepening and widening of tax base. GST has reduced compliance burdens on trade and industry.

The Budget also cites some numbers show how the GST system has provided tax relief and MSME compliance:

  • 94% of survey respondents consider transition to GST regime as positive
  • 80% agree that it has led to supply chain optimisation (as removal of tax arbitrage and octroi has led to disbanding of check posts at boundaries)
  • 2x increase in tax base of GST
  • monthly gross GST collection stands at ₹1.66 lakh crore (number has doubled)
  • States’ SGST revenue has also achieved buoyancy from 0.72 to 1.22 (pre and post GST periods)

The biggest beneficiary of the simplified GST regime however has been the consumers as reduction in logistics expenses and taxes have enabled to cut prices for most goods and services.

Also read: GST registration limit in India

Other initiatives

Tax proposal:

For continuation in taxation, an extension up to 31 March 2025 (i.e., by one year) has been provided for some instances. These include:

  • Certain tax benefits to start-ups
  • Investments made by sovereign wealth or pension funds
  • Tax exemption on certain income of some IFSC units

Withdraw of direct tax demands:

Outstanding direct tax demands of up to ₹25,000 for up to the financial year 2009-10, and up to ₹10,000 for the financial years 2010-11 to 2014-15 will be withdrawn.

Also read: Interim Budget 2024 – Unsecure loans, credit assistance, interest subsidy for MSMEs

Credit to SHG in food processing

Though there have not been specific details on credit access to MSMEs, yet in the mix of incentives and tax benefits being offered to small businesses, the government’s efforts towards making credit easily accessible is evident.

For instance, more than 2.4 lakh SHG (self-help groups) and 60,000 individuals have benefited with credit linkages through the Pradhan Mantri Formalisation of Micro Food Processing Enterprises Yojana. Policies such as these, naturally enable MSMEs to build a strong foundation and grow in a planned manner.

Also read: Interim Budget 2024 – Allocation for technology, research and innovation

Closing thoughts on MSME tax reforms and compliance

Under the ‘Amrit Kaal’ strategy, the goal is to prioritise timely and adequate finance, relevant technologies and appropriate training to MSMEs. Thus, facilitating their growth and global competitiveness.

As can be seen, the Interim Budget has been designed such that it does not stop at compliance and tax reforms. It lays the groundwork for the future including access to credit, market opportunities, training and development and more. This approach signals the governments forward-thinking and initiatives to solve immediate challenges while paving the path for a sustainable future.

Also read: Interim Budget allocation on Infrastructure development and logistics 

We’ll close the discussion on tax reforms and compliance for MSMEs with this quick snapshot of some key points in the overall MSME tax world (not restricted to the Budget announcement):

Old regime New regime (proposed)
Corporate tax relief Standard rate of 30% with limited concession Reduced rate to 22% and 15% (certain new manufacturing units)
GST compliance Conventional GST filing system Simplification of GST filings with quarterly returns for eligible MSMEs reducing compliance costs
Tax compliance incentives and benefits Fewer incentives for timely tax compliance Tax benefits to start-ups, extension by 1 year to some businesses, and other incentives to MSMEs adhering to deadlines
Access to credit Standard MSME financing provisions Easier access to credit through special schemes and lower interest rates for compliant MSMEs
Market access Limited support to access new market Specific programmes to assist MSMEs in expanding their market reach

 

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(For more information, visit the government website to learn about the Union Interim Budget 2024)

Sohini Banerjee

Sohini is a seasoned content writer with 12 years’ experience in developing marketing and business content across multiple formats. At Tata nexarc, she leverages her skills in crafting curated content on the Indian MSME sector, steel procurement, and logistics. In her personal time, she enjoys reading fiction and being up-to-date on trends in digital marketing and the Indian business ecosystem.