The sector of MSMEs is the backbone of India’s economy and contributes to growth, employment, and innovation. Given this importance, the Government of India has been consistently providing various benefits in terms of tax breaks, subsidies, and easier access to credit for MSMEs. After the re-classification of MSMEs, more and more establishments will be able to take advantage of these benefits.
This article aims to outline the various MSME tax benefits for the year 2024 and Key tax breaks that can empower your MSME
Features and Benefits of MSME Registration
To enjoy the tax relief and all other Government schemes, companies first must be registered as an MSME. The registration process is very easy and even an online one can be done through the Udyam Registration portal. So, after registering for MSME, business houses can easily avail of all the benefits. Now, here are the main advantages of MSME registration.
1. It becomes easy to get loans
It makes it easier for businesses to get SME loan from banks and NBFCs. The government has, among many schemes, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which enables businesses to secure loans without collateral. There are lower interest rates and flexible repayment options that make it easier to get financial aid for MSMEs.
2. Government Subsidies
MSMEs have various kinds of benefits such as which relate to the installation of a new venture, modernization of machinery, and quality enhancement. The government has a number of schemes under which it provides subsidies. For instance, CLCSS, which upgrades technology. Such subsidies reduce the costs of MSMEs and make them relatively more competitive.
3. Protection Against Delayed Payments
Under the MSME Development Act, of 2006, registered MSMEs enjoy protection against delayed payments. Larger firms procuring from the MSME units are required to make payments within 45 days. In cases of delayed payments, compound interest on the outstanding amount is payable to the MSME. That helps the MSMEs to achieve cash flow and not face financial stresses due to delayed payments.
4. Advantages of Tender Applications
MSMEs enjoy soft terms while trying to fetch government tenders. In most cases, the eligibility criteria are also relaxed for MSMEs as against bigger companies. Some tenders even waive off earnest money or security deposits while inviting tenders for MSMEs, thereby making the bidding process less hassle for some MSMEs.
5. Lower Patents and Trademarks Fees
Since the government cut down the patent and trademark registration fees to half, MSMEs can now potentially achieve a 50% cut in their price for registration. This encourages innovation and brand protection for small businesses, which can safeguard their exclusive products and services without perceiving the costs of fees to be too expensive.
Important Tax Relief that Can Empower Your MSME
The government has brought many tax benefits for MSMEs in particular. In fact, tax breaks can reduce the cost burden on small businesses and help them put this back into growth and development. Here are some of the major tax advantages available for MSMEs:
1. Presumptive Taxation Scheme
MSMEs can avail themselves of benefits under the Income Tax Act as part of the scheme of Presumptive Taxation under the Income Tax Act, which simplifies taxation. Businesses whose annual turnover is up to ₹2 crore are eligible for the scheme. In the case of business income, it is presumed to be 8% of the total turnover in contrast to 6% if received digitally. Therefore, elaborate book-keeping and auditing requirements are altogether removed resulting in fewer compliance conditions.
2. GST Exemption for Small Enterprises
MSMEs with turnovers under ₹40 lakh annually in the case of goods and ₹20 lakh in the case of services are not required to be registered under the Goods and Services Tax (GST). This exception provides small enterprises with the opportunity to run without the additional costs and paperwork associated with GST compliance.
3. GST Composition Scheme
MSMEs with a turnover of up to ₹1.5 crore can avail themselves of the lower tax rate and simplified compliance through the GST Composition Scheme. The businesses under this scheme pay tax at a fixed percentage of turnover: 1% for manufacturers/traders and 6% in case of service providers. Under this, they greatly reduce the tendency of paperwork and complexity of submission of regular GST returns.
4. Capital Expenditure
The setting up of MSMEs can claim capital expenditures. Section 35AD of the Income-tax Act allows the entire capital expenditure incurred in any year on new businesses or expansion of existing business in the nature of purchasing machinery, and manufacturing units, etc., to be wholly deducted from taxable income.
5. Tax Holiday for Startups
Newly established MSMEs, particularly those classified as startups, enjoy tax holidays through Section 80-IAC Income Tax Act. For recognized businesses, the amount of tax exemption is 100% for three successive financial years within a period of ten years. This means that the venture can be re-invested in the early years, hence it can grow rapidly.
6. R&D Tax Deductions
Those MSMEs involved in research and development can claim tax deductions under Section 35(2AB) of the Income Tax Act. Some of the expenses include salaries, raw materials, and other operation-related costs for scientific research. Such expenditures support innovation, and help the companies minimize their tax liability when they are actually designing new products or procedures.
Conclusion
The MSME sector for any economy is quite important as it supports high economic growth, jobs, and new ideas for the country. The government has presented numerous benefits in the form of easier access to credit, government subsidies, protection against delayed payments, and tax advantages. Major tax reliefs involve presumptive taxation, GST exemptions, starters’ tax holidays, and R&D deductions.
In this manner, almost all financial burdens are removed from MSMEs, and they are able to focus more on growth, innovation, and expansion, hence becoming better in themselves. These measures empower MSMEs as well as provide a competitive business environment.
NBFCs are the Non-Banking Financial Companies, which help MSMEs acquire unsecured business loan in no time and hassle-free. The loans are flexible and ensure that the MSMEs obtain the funds they need to grow and become successful in this competitive market. They have fewer eligibility criteria than traditional banks with very little paperwork and basic KYC checks.