Budget 2019: Income tax exemption for start-ups below Rs 25-cr is what MSMEs want from PM Modi

Budget 2019 expectations: Indian start-ups falling below the annual turnover of Rs 25 crore - mainly MSMEs - have asked the Narendra Modi government to extend income tax exemption to those companies also that are below Rs 25 crore in terms of their annual turnover. Currently, the income tax exemption is available for only those registered companies that have at least an annual turnover of Rs 25 crore or above. They said the move will help small companies to cope with the credit and financial crisis in a much better way.

Commenting upon the matter Rajeev Chawla, Chairman, IamSMEofIndia — an independent platform that fights for the causes of the SMEs and MSME — told Zee Business Online, "The government of India is giving up to 30 per cent income tax exemption to those registered companies, which has an annual turnover of at least Rs 25 crore or above. Since, MSMEs or emerging start-ups do not fall into this category, they are unable to avail this opportunity being provided by the government of India." 

Chawla, who is member of the expert panel of SMEs and MSMEs at FICCI said that for a company of larger size 30 per cent income tax exemption means nothing for small companies he was talking about, 30 per cent income tax exemption can be an avenue for revenue as they can further invest that money for further sustainability of their business.

Standing in sync with Chawla; R Narayan, Founder & CEO, Power2SME told Zee Business Online in an exclusive statement, "Given that MSME’s have long been coping with the issue of lack of access to formal credit, extending the exemption to the sector would be highly beneficial, as it would help save valuable funds that can be ploughed back into business. In addition to this, in order to encourage small and medium entrepreneurs to expand their business, the Government must consider giving exemption on Capital Gains to owners who sell assets to raise capital for expansion. Having said that, the policy reforms should focus on easing the liquidity crunch for MSMEs in the long run which can be done by improving the health of financial institutions and encouraging fintech companies to establish credible alternative lending mechanisms. These initiatives will be critical in offering a long-term solution to an ailing sector that is one of the largest employers in India.”

FY 2018 saw a slew of measures from the Government of India to boost the performance of small and medium enterprises. However, the sector’s heavy reliance on the banking industry for capital continues to be a key stumbling block, given the banks’ reluctance to lend. With the IL&FS crisis in 2018, the robust credit line that NBFCs offered to small and medium enterprises dried up, making them more vulnerable to insolvency.