Msme major tax implication... by nilima & chiranjib
In India, the enterprises have been classified broadly into two categories1. Manufacturing ; and2. Services. Both categories have been further classified into micro, small and medium enterprises based on their investment in plant and machinery or on equipment.
MSME sector is the second largest contributor in terms of GDP after the agriculture sector in the Indian economy and are expected to contribute 22 per cent to Indias GDP by 2012 up from current about 17 per cent. MSMEs provide employment to 60 million people, which is nearly 80 to 90 per cent of the employment. The SME sector contributes nearly 40 to 50 per cent to Indian economic activity (production and exports)
1. Various nationalized banks have come forward in the recent years to finance the funds requirements of MSME sector such as Small Industries Development Bank of India (SIDBI), Industrial Development Bank of India (IDBI), and State Bank of India (SBI).2. Introduction of SME exchange by BSE BSE has introduced SME Exchange & got final approval of SEBI recently. Where the countdown of listing of SME company is intensifying. About 50 companies have already shown interest for listing on BSE SME Exchange .
100% underwriting of the issue IPO issue will be 100% success, irrespective of whether it is fully subscribed or not. Guarantee of listing which encouraging the SMEs, as the uncertainty of failure of IPO is no longer there. The SMEs will need at least 50 investors each investing at least Rs 1 lakh at the time of IPO and the size of IPO can be as low as Rs. 50 lakhs.
Taxation as one of the major aspect for business development requires proper updating and planning. Here the objectivity is to outline a structure of fundamental ideas and to facilitate for setting up a supreme base to handle all the tax affairs relating to MSMEs.
Taxation is an inseparable part of any business. It can help business to achieve its corpus if planned well; otherwise it can cost the company in a very big way. In present economy the importance of tax planning is well understood by every corporate. In case of MSMEs tax planning is also crucial for its sustainability and development. As far as MSMEs are concerned Indirect taxes plays relatively significant role than Direct taxes as basically it is imposed at the inception stage i.e. production/manufacturing. In case of MSME excise duty & income tax in contrast with other duties and taxes are of utmost importance.
MSME Scheme (Without CENVAT) Rate of duty in respect of Clearances of Excisable Goods Value of Clearance Rate of duty Remarks (Rs.) Upto 100 Lakhs Nil Not to avail Cenvat 100-300 Lakhs Normal rate of duty Can avail Cenvat
MSME Scheme (with CENVAT) Rate of duty in respect of Clearances of Specified goodsValue of Clearance Rate of duty Remarks(Rs.)Upto 100 Lakhs 60% of normal rate Cenvat credit is of duty available from the beginning itself100-300 Lakhs Normal rate of duty Can avail Cenvat
I. Exercise the option in writing under this notification before effecting the first clearances and such option shall be effective from the date of exercise of the option and shall not be withdrawn during the remaining part of the financial year.II. The aggregate value of clearances of all excisable goods for home consumption does not exceed preceding financial year Rs.300 lakhs.
III. While exercising the option under condition (i), the manufacturer shall inform in writing to the jurisdiction Deputy Commissioner or assistant Commissioner of Central Excise with a copy of the Superintendent of Central Excise giving the following particulars, namely:- ◦ name and address of the manufacturer; ◦ location/locations of factory/factories; ◦ description of specified goods produced; ◦ date from which option under this notification has been exercised; ◦ aggregate value of clearances of specified goods (excluding the value of clearances referred to in para 3 of this notification) till the date of exercising the option.
Specified goods produced without the aid of power. All capital goods, intermediate goods and inputs if captively consumed within the factory of their production or used in the manufacture of specified final products in the manufacturer or specified goods. Specified goods if manufactured on job work basis/cleared for job work/manufactured as a job work and used in the manufacture of final products. Goods produced in a technical, educational and research institute during the course of technical training or an academic or vocational nature or carrying out experiments or research. Goods supplied to specified research institutions.
Goods produced in Government Factories, Mines, Mints, prisons Defence Production etc. Goods manufactured by specified units/Institutions for use by Governmnet Departments or Defence purposes. Goods supplied for Defence or other specified purposes. Specified goods manufactured in a State Government factory and intended for use in any of its department. Duty in excess of 10% is exempted on goods for supply to Gas Authority of India Limited, Oil and Natural Gas Corporation Ltd., or the Oil India Limited. Certain specified goods connected with solar and natural energy.
Improved Chulhas (including smokeless Chulhas) capable of burning wood, agro-waste, cow-dung, briquettes and coal. Goods manufactured by institution for handicapped persons. Good produced or manufactured in a Free Trade Zone. Specified goods used by units in Export Processing Zones/Free Trade Zones. Goods brought to any gem and jewellery manufacturing units set up in Santa Cruz Electronics Export Processing Zone (SEEPZ). Goods produced in 100% Export Oriented undertakings but not sold within India.
IIA has following proposal for income tax in the budget:(a) the rate of depreciation on plant and machinery for MSME sector should be enhanced to 50% from 15% at present as an incentive for investment in new plant and machines.(b) the income tax rate for manufacturing enterprises in MSME sector to be reduced to 20% from 30% at present.(c) System of reprimand for wrong assessments.(d) Surveys U/S 133 A(e) Filing Income Tax returns for loss(f) Rationalizing the disallowance of cash payment U/S 40 - A(3)(g) Online tax payment system(h) Advance Tax
a) T.C.S. @ 1.133%b) Compulsory Auditc) Section 269-SS and 269 Td) Section 50-C- Valuation of assetse) Section 40-A(2)(b) regarding salary payments
Suggestions for Direct Taxes Accelerated depreciation be allowed to MSMEs on the purchase of production machines and R&D equipment to give fillip to technological up-gradation and scaling up and adopting green processes. Profit ploughed by the Small Scale and Micro Industries into business could also be exempted from levy of Income Tax. Graded Taxation for companies and LLPs: To encourage SMEs to move to Co. format, slab wise taxes in line with individuals and proprietorship firms will help.
Suggestions for Indirect Taxes: Refund of Central Excise Duty Interest on Central Excise Duty (CED) on supplementary Invoices
MSMEs should be allowed some exemptions which will lower their tax burden and also will help to boost up its surplus funds. Lower tax rate should be introduced for MSMEs. Special Deductions should be introduced so that any person making any investment in MSME should be allowed deduction equal or more than the value of investment. By implementing this strategy Government can accumulate capital for this sector without any additional investment from its side.
Excise duty should have to be lowered for MSME products. Some of the goods produced by the MSME sectors should have to be kept out of the purview of sales tax/vat. As GST will replace all the indirect taxes, rules regarding the same have to be made in such a manner so as to provide an advantage to MSMEs.