Budget 2023: Taxation Benefits and Credit Guarantee Scheme for MSMEs and Startups

The Finance Minister, Nirmala Sitharaman, presented the Union Budget 2023-24 on 1st February 2023. Every year, the Budget provides tax benefits and other measures for the Micro, Small and Medium Enterprises (MSMEs) and startups in the country, which helps them grow and boost their businesses.

Tax Benefits Provided to MSMEs and Startups

Increase in threshold limits under the presumptive taxation scheme

The threshold limits for the presumptive taxation scheme are increased from Rs.2 crores to Rs.3 crores for eligible businesses to promote non-cash transactions and ease compliance. This increased limit will apply only in the case the aggregate of the amounts or amounts received in cash during the year does not exceed 5% of the total gross turnover/receipts.

Concessional tax to new manufacturing co-operative societies 

The Budget 2023 provides an option to pay tax at a concessional rate of 15% for a new co-operative society established on or after 01/04/2023, commencing production or manufacture by 31/03/2024 and does not avail of any specified deduction or incentive.

Relief to startups in carrying forward and setting off losses

The Budget 2023 provided relief to startups by giving the benefit of carry forward of losses on a change of shareholding of startups from seven years to ten years. The condition of continuity of a minimum of 51% shareholding to set off of carried-forward losses is relaxed for eligible startups if all company shareholders continue to hold those shares.

Date of incorporation of startups extended for tax exemption 

Certain startups are eligible for tax benefits if they are incorporated before 01/04/2023. The period of incorporation of such eligible startups for receiving tax benefits is extended by one more year, i.e. 01/04/2024.

Ease in claiming amortisation deduction of preliminary expenditures 

At present, the assessee or a concern approved by the Board should carry out the activity of an enterprise for claiming amortisation of certain preliminary expenses. To simplify the process of claiming amortisation of preliminary expenses, Budget 2023 proposed to remove the condition of a concern approved by the Board to carry out the activity in connection with these expenses. The government will prescribe the format for reporting such expenses by the assessee.

Promote timely payments to MSMEs 

The Budget 2023 proposed to include payments made to MSMEs within the ambit of Section 43B of the Income Tax Act, 1961, to promote timely payments to MSMEs. Thus, a deduction for such payments will only be allowed when it is actually paid. It will be allowed on an accrual basis only when the payment is made within the time prescribed under the Micro, Small and Medium Enterprises Development Act.

Other Benefits Provided to MSMEs and Startups

Extension of Credit Guarantee Scheme for MSMEs

The Budget 2023 proposed to revamp the Credit Guarantee Scheme for MSMEs, which will be effective from 01/04/2023 through an infusion of Rs.9,000 crore in the corpus. It will enable additional collateral-free guaranteed credit of Rs.2 lakh crore, and the cost of the credit will be reduced by about 1%.

Vivad Se Vishwas I – Relief for MSMEs

In the case of failure to execute contracts by MSMEs during the Covid period, the government and government undertakings will return 95% of the forfeited amount relating to performance or bid security to them.

Setting up of Agriculture Accelerator Fund for agri-startups

An Agriculture Accelerator Fund will be set up to promote and encourage agri-startups by young entrepreneurs in rural areas. The Fund will aim to bring affordable and innovative solutions for challenges faced by farmers. It will also help to bring modern technologies to transform agricultural practices and increase profitability and productivity. 

A common business identifier for businesses 

The PAN will be the common identifier in all digital systems of specified government agencies for business establishments required to have a PAN. It will be facilitated through a legal mandate and bring ease of doing business.

Setting up of Entity DigiLocker for MSMEs

An Entity DigiLocker will be set up for use by MSMEs and large businesses. It will be towards sharing and storing documents online securely with various regulators, banks, authorities and other business entities.

Measures to enhance business at GIFT IFSC

The Budget 2023 proposed various initiates to enhance business activities in GIFT IFSC, which are as follows: 

• Delegating powers under the SEZ Act to IFSCA to avoid dual regulation
• Single window IT system for regulatory approval and registration
• Permitting acquisition financing by IFSC banking units of foreign banks
• Establishing a subsidiary of EXIM Bank for trade re-financing
• Recognising offshore derivative instruments as valid contracts

MSMEs are the growth engines of our country and contribute immensely to economic development. The measure and benefits provided in the Budget 2023-24 to MSMEs and startups will provide ease of compliance and business.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@clear.in