Biz Analyst

What The Budget Holds For Indian MSMEs

The year 2020 had not been a great year for the economy. The disproportionate distribution of wealth and opportunity widened and the ones who suffered the most were the MSMEs. In 2021 the hope for a better economy was renewed with the budget announcement. Finance Minister Nirmala Sitharaman has made a provision of Rs 15,700 crore for the Ministry of Micro, Small, and Medium Enterprises (MSME) sector in the Union Budget 2021–22. What are the announcements and how do they affect the MSMEs? Let us break it down for you.

OPC Setup: One-person companies will be allowed to be converted into any other type of company at any time and there is to be a reduction in the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days. NRIs too are allowed to incorporate OPCs in India.

Extending Tax Holiday: The budget proposed an extension of eligibility for claiming tax holidays for startups as well as capital gains exemption for investment in startups till March 31, 2022, to encourage funding for startups.

National Company Law Tribunal (NCLT). The FM announced that the framework of NCLT will be reformed and strengthened, the e-courts system to be implemented, and alternative methods of debt resolution and distinct framework for MSMEs to be introduced which will be beneficial to MSMEs.

Withdrawing Exemption on Imports: The budget announced that exemption on imports of ‘certain’ kind of leathers will be withdrawn as they are domestically produced in superior quantity and quality, by MSMEs.

Customs Duty Lowered: The government said that it will be reducing customs duty uniformly to 7.5 percent on semis, flat, and long products of non-alloy, alloy, and stainless steels. This move will help MSMEs and other user industries adversely affected by the rise in iron and steel prices. An increase in duty from 10 percent to 15 percent on steel screws and plastic builder wares was also proposed which would benefit MSMEs.

Revising Definition of small companies: Finance Minister proposed a revision in the definition of small companies in the budget by raising thresholds for paid-up capital from Rs 50 lakh to Rs 2 crore and turnover from Rs 2 crore to Rs 20 crore.

These measures are designed to help MSMEs that will benefit from reforms that will fast-track their growth back to the pre-Covid era and help them recover economically. MSMEs are the backbone of the Indian economy in their well-being lies the growth of the country.

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