Booster to small enterprises" in Expert column of Realty Plus

Small enterprises are the strong pillars of our country which significantly contributes to our economy’s Vikas and Rojgar. Over the period, their presence is now across various states and sectors. Such enterprises are predominantly in trading activity followed by services and manufacturing and their presence in top 3 states will comprise of Uttar Pradesh, West Bengal and Tamil Nadu. Our Prime Minister’s motto of Sabka Saath, Sabka Vikas (Collective Efforts, Inclusive Growth) is not just a slogan but sincere efforts are made by the Central and State Government to make it a reality.

Recently it is proposed to expand the coverage of such small entrepreneurs under the Micro, Small and Medium Enterprise Development (MSMED) Act, 2006(the Act) by considering the annual turnover limits instead of existing criteria of threshold

amount of investments in plant and machinery. The current and proposed limits are given below.


Note – Currently the share of registered micro enterprise would be more than 75% of total of such enterprise registered under the Act.
The challenges faced by such enterprises would include working capital requirements, increasing cost of operations and personnel cost, competition with those having economy of scale and administration related issues. Measures are taken by the Government to address some of these challenges and also extend their support to strengthen and protect the rights of the small enterprises (encompassing manufacturing as well as service sectors). Some of these are elaborated below.

Protective rights given under MSME Act, 2006
a. In case of delayed payments from customers to Micro and Small Enterprise (MSEs), they are entitled to compound interest which is 3 times of the bank rate notified by RBI in case if customer does not make payment to the MSEs for his supplies of goods or services within 45 days of the acceptance of the goods/service rendered.However in reality, such enterprise may not enforce to claim interest considering long term continuing business relationship with the buyers and other factors like market conditions and cluster of other alternate vendors.

b. Mentioning of MSME registration number on all the documents like invoices, letter-heads, and KYC details given to customers will enable such enterprises to safeguard their rights.

c. Ministry of Corporate Affairs also mandated all companies to disclose the outstanding aggregate amounts payable to such enterprise on face of balance sheet.

d. Web-based portal is launched to redress their grievances and also set-up Facilitation Council constituted by the respective State Government for focussed approach to resolve their concerns.

2. Priority lending rights and other relaxations given by the Reserve Bank of India (RBI)

a. Banking Regulation also provides for priority lending, collateral free lending to certain extent, rehabilitation of sick units, financial literacy and consultancy support to such MSEs.

b. Recently, RBI has given relaxation to MSME borrowers in terms of overdue amounts beyond 90/120 days which will not be considered as NPA (non-performing assets) of banks/NBFC if payments are made upto 180 days from the date they were due. This relaxation was given considering that GST (Goods and Service Tax) had adversely impacted the cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and NBFCs.

c. Additionally, recently RBI has removed the loan limits of ₹ 5 crore and ₹ 10 crore per borrower to Micro/ Small and Medium Enterprises (Services) respectively, for classification under priority sector. Accordingly, all bank loans to MSMEs, engaged in providing or rendering of services, shall qualify under priority sector without any credit cap.

3. Income Tax benefits by way of lower tax rates and tax-holiday period

a. Our Finance Bill 2018 proposed to reduce the income tax rate from 30% to 25% for domestic companies whose annual turnover in FY 2016-2017 is upto ₹ 250 crore. Prior to what is proposed in the Budget, the concessional tax rate of 25% was applicable for domestic companies whose total turnover or gross receipts in the previous year 2015-16 does not exceed ₹ 50 crores. The limit of ₹ 50 crores has been increased to ₹ 250 crores to cover medium level enterprises. Unfortunately such benefit is not available to other forms of organization like proprietorship, partnership firms and limited liability partnerships.

b. Additionally, there is no income tax liability for eligible start-up entities whose annual turnover does not exceed ₹ 25 crore. This tax holiday is available for three consecutive assessment years out of seven years beginning from the year of incorporation. Ventures whose business model does not believe in burning cash will significantly benefit from such tax holiday and saving in tax outflows can be used in business growth.

4. There are sectors specific subsidies / grants from the State Government like power subsidy, items reserved and minimum quantity for procurement from MSME, relaxation to start-ups from prior experience and prior turnover clause in tender application.

5. Administrative ease is given in the form of (a) allowing self-certification of compliance with the labour laws and exemption from inspection for initial years of set-up (b) speedy process for obtaining any business related licenses from respective authorities.

6. In case of foreign investment in single brand retail business beyond 51%, it is mandatory to source 30% of value of goods purchased from India and preferably from MSMEs. This will supplement the growth of such enterprise and also contribute towards our Country’s mission of “Make in India”.

7. Relaxation is also given for listed entities on SME Exchange from mandatory compliance of maintaining books of accounts as per Indian Accounting Standards which are equivalent to internationally followed accounting principles.

8. The relaxation given to small companies under the Companies Act, 2013 are mainly towards ease of doing business in the form of less regulatory compliance.

On closing note, MSME’s need to strive and put extra efforts to deliver the results in true spirit to accomplish their dream “To Grow Bigger”. Collective efforts from the Government, large corporate, and citizens like us will certainly help in spreading awareness among such business entrepreneurs and educate them. They are certainly the “Rising Star” of “Rising India”.

– By, Mr. Bhavin Kapadia (Manager – Audit & Assurance) N. A. Shah Associates LLP