Re-defining MSMEs: Key highlights from the Government’s Atma-nirbhar Bharat Abhiyaan Economic Package

MSMEs: Key highlights from the Government’s Atma-nirbhar Bharat Abhiyaan Economic Package

To rise the sinking ship of economic aggravations during this global pandemic, the government has brought out an economic relief package of a mammoth INR 20 lac crores, inculcating fiscal policies and relief measures for several industrial sectors. The major emphasis of this economic respite was MSME revival, tax relief measures and EPF support. 

Defining the New MSME

Amendment in the definition of MSMEs under the Atma-nirbhar Bharat Abhiyaan is aimed at providing greater support and aid to the micro, small and medium sized enterprises. In contrary to the earlier definition which was based on investments in plants, machineries and equipment; it will now be demarcated by both investment and turnover. 

The classification on the basis of investments and turnover will be as follows:

  • Micro: < INR 1 Crore and < INR 5 Crore, respectively.
  • Small: <INR 10 Crore and < INR 50 Crore, respectively.
  • Medium: < INR 50 Crore and <INR 250 Crore, respectively.

Highlights from Atma-nirbhar Bharat Abhiyaan Economic Package for MSMEs

1. Emergency Credit Line 

A funding in collateral-fee automatic loans of INR 3 lac crores is to be provided to jumpstart the operations of the enterprises. With an estimation to assist 45 lac businesses across country, the policy can be used at dispersal by MSMEs until October 31st, 2020.

  • Banks and NBFCs will release this emergency credit line for an amount up to 20% of the MSME’s entire outstanding credit, as on February 29th, 2020.
  • Borrowing parties with a turnover and outstanding credit of up to INR 100 crore and INR 25 crore will be eligible to acquire credit under this arrangement. 
  • A 4-year tenure and 12-month moratorium on principal repayment will be provided for loans.
  • A cap on interest rate and no additional collateral or guarantee will be asked from the MSMEs.
  • A 100 per cent credit guarantee cover for banks and NBFCs on principal and interest.
2. Debt and Equity Infusion 

Adding to the Emergency Credit Line, a subordinate debt of INR 20,000 crores will also be provided by the government.

  • Functional but NPA category or stressed MSMEs will be eligible to avail benefits under this scheme.
  • INR 4000 crores to Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which will deliver banks with partial credit guarantee will be provided by the government.
  • Debt to MSME promoters will be provided by the banks who will infuse the money as their equity in the enterprise. 

An equity funding to MSMEs with growth potential through Fund of Funds, with INR 10,000 crore will also be provided under this policy. The fund aims at upscaling and offering a potential listing of the MSME on Stock Exchanges.

  • Funds of Fund will function through a Mother and multiple Daughter Funds.
  • Structure of the fund will leverage INR 50,000 crore at the daughter funds level. 
3. Limitation on Global Tenders

Global tenders will not be allowed in government procurement tenders of up to INR 200 crore, permitting amendments to the General Financial Rules, as per the announcement. 

4. EPF Support to Workers and Businesses

Funding of EPF contributions by both employee and employer- a total of 24% wages will be covered under this relief measure. Enterprises with less than a 100 employees can only avail this. A liquidity relief of INR 2,500 crore to 3.67 businesses and 72.22 lac employees will be provided.

To provide relief to over 6.7 lac businesses and 4.3 crore employees, the EPF contribution of both the employee and the employer will be reduced to 10% for next 3 months. This will not be applicable to the employees shielded with 24% EPF support. Although, central public sector enterprises and state PSUs will still contribute 12% as their employer contribution.  

5. Reduction in TDS and TCS Rates

TDS rates for non-salaries payments made to resident individuals and TCS rates have been slashed to 25% of existing rates for the remaining of the Financial Year, ensuring a relief liquidity of INR 50,000 crores approximately. 

6. Direct Tax Amendments

Extension in the due date for income tax returns filing and taxpayers not eligible for tax audit for the current Financial Year has been scheduled to November 30th 2020. Due date for tax audit form filing has also been extended to October 31st 2020. Additionally, the government even asked the issue of all pending tax refunds of small businesses, professions and trusts, with immediacy.  

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