Guarding and strengthening the micro and small enterprises
Interest Income

Guarding and strengthening the micro and small enterprises

– By Bhavin Kapadia and Neha Inani

Our nation is shining as a vibrant star on the planet as described by our honourable finance minister in her finances speech. The ecology of the creating nation depends upon contribution from all corners and sectors to advance considerably. Small entrepreneurs are offered safety rights and a booster dose with an intention of selling innovation and complete upliftment. The brink limits for classifying and registering as micro, small and medium enterprises have steadily elevated to increase the bottom of MSME and the present limits are as tabulated under:

Standards Micro enterprises Small enterprises Medium enterprises
Funding in Plant & Equipment or Tools Lower than or equal to INR 1 crore Lower than or equal to INR 10 crores Lower than or equal to INR 50 crores
Annual Turnover Lower than or equal to INR 5 crores Lower than or equal to INR 50 crores Lower than or equal to INR 250 crores

Benefits given to MSME

To vitalize and guard such entrepreneurs, prolonged help is given within the type of entitlement to money credit score facility with decrease rate of interest, collateral free financial institution credit score, waiver from issuing earnest safety deposit in opposition to tender, channel financing with out recourse on such enterprises and elevating the edge limits for acquiring GST registration. Additional, within the latest Finance Invoice, additionally it is proposed to extend the edge restrict for paying earnings tax on presumptive foundation (i.e. computing taxable revenue at fastened % of the turnover) with out sustaining their books of account.

Considerations of MSME

Key issues raised by the fraternity of micro, small and medium entrepreneurs comprise of competitors from massive entrepreneurs when it comes to pricing and reductions, lengthy credit score interval demanded by the purchasers, branding, insufficient assets for promoting and managing money flows for day-to-day operations.

Measures taken by the federal government to deal with or mitigate the issues

To deal with these issues, the federal government had enacted MSME Act, 2006 which mandates that funds ought to be made to micro and small entrepreneurs within the stipulated timeline of 15 days and never past 45 days from the day of acceptance. In case the get together defaults or delays the cost, then micro and small enterprises are entitled to obtain curiosity at 3 occasions of financial institution price computed on compounded curiosity with month-to-month relaxation. Earnings tax legislation prohibits sure deductions to be claimed as bills like bills incurred on Company Social Accountability, the identical remedy can also be given for curiosity payable to micro and small events. 

To additional implement this legislation, entities who’ve undertaken enterprise transactions with MSME events are directed to reveal of their annual monetary assertion the combination quantities as a consequence of micro and small events, overdue quantities, curiosity legal responsibility paid thereon and excellent curiosity. Moreover, company entities are required to file half yearly varieties with MCA concerning overdue excellent payables to micro and small enterprises.

New initiative proposed within the Finance Invoice – ‘Pay on time or penalize’

Inspite of such measures taken by the Authorities to safeguard the curiosity of micro and small enterprises, funds weren’t launched to them on well timed foundation. The funds have been stored on maintain as a consequence of retention / defect legal responsibility interval and curiosity legal responsibility was gathered / adjusted in pricing.

As per the Earnings tax legislation, there are particular quantities that are allowed as expense deduction solely on precise cost foundation and never on accrual foundation like oblique taxes collected / deducted, employees associated depart encashment and statutory bonus. With the highlight on MSME, Finance Invoice 2023 has proposed that expense incurred and payable to micro and small distributors shall be allowed for computing tax revenue solely on precise cost to such events, i.e., unpaid quantity to micro and small events shall be disallowed and earnings tax profit won’t be accessible. This modification is proposed to be efficient from monetary yr 2023-2024. This can be a welcome transfer from the attitude of micro and small events which is able to allow liquidity of their palms and improved debtor turnover ratio. 

Implication on the enterprise coping with MSME

This proposed change in earnings tax legislation could have vital repercussions on the counter get together contemplating its influence on tax outflow. Additional, it’s relevant to all enterprise enterprises no matter the authorized construction being company or non-corporate enterprises. It additionally doesn’t carve out transactions between two events that are micro and small. With the proposed change in tax legislation and contemplating the higher governance of abiding the Legislation of Land, enterprise enterprises have to relook on the business phrases agreed upon with the micro and small events and guarantee strict inside controls on well timed funds to such distributors. In-order to inculcate this technique, it’s suggested to conduct periodic open home periods for compliance of the legislation in the suitable spirit.

Awaiting clarifications from Earnings Tax on the proposed legislation of pay or penalize

There are particular issues that are unclear at this stage and stakeholders expect the Earnings Tax division to difficulty a FAQ to keep away from ambiguity within the authorized place. A number of the areas that are deliberated are implication of unpaid excellent liabilities to micro and small events as on 1st April 2023, applicability of such provision to buy of capital gadgets and disputed issues with events beneath litigation.


Finest efforts are made by the Authorities to strengthen the arm of MSME sector and enterprise enterprises are anticipated to help the identical. To leverage such advantages and acknowledge the provoke taken the Authorities, MSME events also needs to take self-initiative to enhance their effectivity, supply timelines, high quality elements and total use of know-how which is able to make them the ‘First Most well-liked Vendor’ and turning into a associate within the worth chain fairly than simply acknowledge as a provider of fine or providers. 

(Bhavin Kapadia is the Companion and Neha Inani is Certified Affiliate at NA Shah Associates.)

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