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Tax Benefits with Budget 2018 for SMEs

The speech on Union Budget 2018, by Finance Minister Of India, Mr. Arun Jaitley provides a major boost for Micro, Small and Medium Industries (MSMEs). Prime crux among them focused on “Ease of Doing Business” by the government and tax benefits for these SMEs.

There was a proposed reduction in corporate income tax rate for a major section of businesses in the fifth budget by NDA. A few layers of tax exemptions were also modified in the Union Budget, 2018 in accordance with promises made earlier by the government.

The ministry was keen on providing greater benefits to MSMEs and ease the cash-flow burden on them. Various new schemes were also launched by the government to facilitate easy financing for MSMEs.

Read further to know how Union Budget of 2018 may provide tax benefits to these businesses and thereby enabling greater investments and job creation.

Reduction in Corporate Tax: A long demand pending

Finance Minister proposed to cut the corporate income tax rate to 25% from existing 30% for companies with an annual turnover of up to Rs. 250 crores. The corporate world has been demanding lower tax payouts since long. Major industry bodies have been urging the government to reduce tax rates in accordance with announcements made three years ago.

In November 2015 the government had laid down a comprehensive roadmap for phasing out the corporate tax exemptions by 2018 as it looks to reduce the tax rate, simplify administration and improve India’s competitive edge globally.

Finance Minister said that this decision will benefit 99% of all the companies that pay taxes adding that mini, micro, small and medium enterprises will gain the most from this rate cut. He also mentioned that the estimation of revenue foregone due to this measure is Rs. 7000 crores for the financial year 2018-19.

Greater Investments and Job creations

The decision to cut the corporate tax rate will enable greater investments by MSMEs and hence more participation in job creation. It will ease the pressure on stressed accounts of businesses and will empower them for larger financing options. The higher investible surplus could also enable them to recruit more employees and hence will create more jobs in the country. Besides, the Finance Minister proposed a target of Rs. 3 lakh crores for financing SMEs.

Tax Exemptions: A major boost for FPC

The Budget proposed 100% exemption of tax under Section 80P for companies who derive profit directly from members engaged in primary agricultural activities. Similar benefits are extended to Farm Production Companies (FPC) having a total turnover of up to Rs. 100 crores.

This would have a direct impact on agro-based companies who purchase their products directly from farmers. Apart from strengthening farmers, it will boost these farm production companies to invest heavily in inventory.

Apart from this, new ventures with the annual turnover under Rs. 25 crores, can avail tax exemptions for three consecutive years. With these reforms in the tax structure, the government seems to be planning a road-map for further stimulating the ease of doing business in the country and gratify the demands for a beneficial tax structure for the business houses.

Reena Rawat
Author: Reena Rawat

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