Boost for MSMEs: More units to benefit from 50% hike in turnover limit to Rs 3 crore

According to data shared with Parliament in December 2022, the share of MSME manufacturing output in all India Manufacturing Output during 2020-21 was around 36 per cent.

Recognising that timely payments are crucial for MSMEs, Nirmala Sitharaman said deduction for expenditure incurred on payments made to them will only be done when payment is actually made to them.

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The presumptive taxation limit for Micro, Small and Medium Enterprises (MSMEs) has been raised to Rs 3 crore, provided their total cash receipts are not more than 5 per cent of the total receipts, Finance Minister Nirmala Sitharaman announced in the Union Budget for 2023-24.

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Recognising that timely payments are crucial for MSMEs, she said deduction for expenditure incurred on payments made to them will only be done when payment is actually made to them. “MSMEs are the growth engines of our economy. Micro enterprises with turnover up to Rs 2 crore and certain professionals with turnover of up to Rs 50 lakh can avail the benefit of presumptive taxation. I propose to provide enhanced limits of Rs 3 crore and Rs 75 lakh respectively, to the taxpayers whose cash receipts are no more than 5 per cent,” Sitharaman said.

“Moreover, to support MSMEs in timely receipt of payments, I propose to allow deduction for expenditure incurred on payments made to them only when payment is actually made,” she said. In cases of failure by MSMEs to execute contracts during the Covid period, 95 per cent of the forfeited amount relating to bid or performance security will be returned to them by the government and government undertakings, which will provide relief to MSMEs, she said.

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Sitharaman also said the revamped credit guarantee scheme for MSMEs, which she had announced last year, will take effect from April 1, 2023 through an infusion of Rs 9,000 crore in the corpus. “This will enable additional collateral-free guaranteed credit of Rs 2 lakh crore. Further, the cost of the credit will be reduced by about 1 per cent,” she said.

A critical problem faced by the MSME sector is delayed payments. It’s the smallest establishments – the micro and small units — which were hit the hardest post-Covid with their pending dues touching Rs 8.73 lakh crore, almost 80 per cent of the total pending for the entire MSME sector until 2021, a report by the Bengaluru-based Global Alliance for Mass Entrepreneurship had said last year.

Delayed payments, as percentage of sales, had seen a sharp spike from 46.16 per cent in 2020 to 65.73 per cent in 2021 for the “micro” segment and from 28.85 per cent to 31.10 per cent for “small” units, the report, which was shared with the Union MSME Ministry, had said. Despite various diktats from the Centre, the value of delayed payments to the MSME sector increased to Rs 10.7 lakh crore until the end of 2021 calendar year, according to the report.

A Crisil report showed that more than a quarter of India’s MSMEs lost market share of over 3 per cent due to the pandemic. And half of them suffered a contraction in their earning margins because of a sharp rise in commodity prices during 2021 fiscal, compared with 2020. This is exacerbated by delayed payments.

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Nitin Gadkari, the then MSME minister, had flagged in mid-2020 that state and central governments, their ministries and PSUs, and major industries combined owed an estimated Rs 5 lakh crore to MSMEs. The report by the Global Alliance for Mass Entrepreneurship had also said that median debtor days beyond the legally recommended 45-day period for micro enterprises in 2020-21 was 6.5 months (195 days), compared to two months (68 days) for small enterprises; and 1.5 months (47 days) for medium enterprises.

The government, in 2020, had asked both PSUs and the top 500 companies to clear their dues to units in the sector. This was done as part of the government’s plan to ensure enough liquidity for MSME units along with a credit facility for the sector under the Emergency Credit Line Guarantee Scheme (ECLGS) scheme.

According to data shared with Parliament in December 2022, the share of MSME manufacturing output in all of India’s manufacturing output during 2020-21 was around 36 per cent. As per the information received from Directorate General of Commercial Intelligence & Statistics, the share of export of specified MSME related products in all India exports during 2021-22 was 45.03 per cent.

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Soumyarendra Barik

Soumyarendra Barik is Special Correspondent with The Indian Express and reports on the intersection of technology, policy and society. With over five years of newsroom experience, he has reported on issues of gig workers’ rights, privacy, India’s prevalent digital divide and a range of other policy interventions that impact big tech companies. He once also tailed a food delivery worker for over 12 hours to quantify the amount of money they make, and the pain they go through while doing so. In his free time, he likes to nerd about watches, Formula 1 and football. ... Read More

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