On 12 May 2020, the Prime Minister of India in his address to the Nation announced that the Government of India will unveil an INR 20 trillion economic package to boost the economy and make India self-reliant. As per his announcement, the economic package will be based on five pillars of the economy, infrastructure, technology-driven systems, vibrant demography, and demand. The blueprint of the economic package was to be unfolded by the Finance Minister in the upcoming days starting from Wednesday (13 May).

As promised by the Hon’ble Prime Minister, yesterday the Finance Minister announced the first part of the economic stimulus package which was largely focused on helping the MSME (Micro, Small and Medium Enterprises) sector and putting more money in the hands of people.

We have summarised below the major announcements in the first part of the economic stimulus package that impact foreign organizations operating in India.


Direct tax relief

  • Reduction in tax withholding/collection rates – The tax laws require a payer to withhold taxes on specified transactions at specified rates. Similarly, on certain specified transactions, tax is liable to be collected.

In order to boost cash liquidity, the specified rates for tax withholding/collection on certain non-salaried payments to resident payees have been reduced by 25%. The reduced rates shall be applicable from 14 May 2020 to 31 March 2021.

All payments for the contract, professional fee, interest, rent, dividend, brokerage, commission, etc. to residents are eligible.

  • Extension of the tax return and tax audit deadline – The due date for tax return filings have been pushed to 30 November 2020 for all category of taxpayers for Financial Year 2019-20. Similarly, the date for filing of tax audit for Financial Year 2019-20 has also been extended to 31 October 2020.
  • Issue of tax refunds – The pending income tax refunds of charitable trusts and non-corporate businesses and professions including proprietorship, partnership, and LLPs and cooperatives shall be issued immediately.
  • Extending period of limitation for assessment proceedings – The due date for concluding assessment proceedings which are getting time-barred on 30 September 2020 and 31 March 2021 has been extended to 31 December 2020 and 30 September 2021 respectively.
  • The Direct Tax Vivad se Vishwas scheme – The timeline for payment of disputed arrears without attracting an additional 10% amount under the Vivad se Vishwas Scheme is further extended from 30 June 2020 to 31 December 2020.

Social security contribution relief

  • Reduction in statutory Provident Fund (PF) contribution – The statutory PF contribution for both employers and employees has been reduced from the existing 12% to 10%. The reduction in contribution shall be applicable for the next 3 months – June, July, and August 2020.

Micro, Small and Medium Enterprises (MSME) sector

  • Expansion in the criteria for inclusion in the MSME sector – The criteria for a business to be classified as MSME has been expanded. While earlier the same was based on investment, under the revised criteria, both investment, as well as turnover, will be taken into consideration. Further, the distinction between manufacturing and service has been removed. The revised criteria are as under:

  • Liquidity boosting measures – The government has also announced several other measures to boost liquidity in the MSME sector. Key announcements are:
    • Additional collateral-free working capital facility up to 20% of outstanding credit as of 29 February 2020 to specified MSMEs. There will be a moratorium of 12 months coupled with a concessional interest rate. This will also be 100% guaranteed by the Government.
    • Equity infusion through fund of funds.
    • Funds for stressed MSMEs.
    • Government tenders up to INR 2 billion will be local and not global.
    • E-marketplace for the MSME sector.

The Government has announced certain other measures to provide relief to sectors such as real estate, power sector, construction, and NBFCs. This economic package (including measures announced and to be announced) is roughly 10% of the GDP of India and is amongst the largest in the world and is a welcome development. Considering the vast demographic of India and the impact of COVID-19 on the world economy, it is not an easy task to stitch together a package which takes into consideration all sectors and people from all walks of life. It is expected that these measures will support the already battered economy and again take India on its path of progress. Hoping this to be another ground-breaking reform.

 

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