Industry body PHD Chamber of Commerce and Industry (PHDCCI), a prominent trade and industry organisation, has submitted a fresh set of budget recommendations seeking urgent tax reliefs, easier credit, equity support and wider policy coverage for the MSME sector. These budget recommendations range from treatment of capital gain tax (CGT) on investment in MSMEs to reintroduction of the interest subvention scheme on bank credit, and high cost and administrative burden on micro enterprises due to tax audits.

8 key budget recommendations made by PHDCCI:

Expand capital gains exemptions to all MSME investments: Section 54 of the Income Tax Act for granting exemption on investment of capital gain should be expanded to include all investments made in MSMEs out of any kind of capital gain generated, PHDCCI says. In the budget 2019/20, investments made in start-ups out of capital gains were exempted under section 54GB, the validity of which was restricted up to March 2022. Investments made in all MSMEs out of capital gain on the sale of residential or other properties should be exempted from income tax, it adds. This will give a boost to MSMEs in India, says the association.

Reintroduce 2% interest subvention on MSME loans: PHDCCI has proposed to gradually reduce the interest rates on credit availed by MSMEs from banks and NBFCs. “Till the interest rates are reduced, which might take a long time, MSMEs should be assisted with Interest subvention by providing 2% interest subsidy on new loans and incremental loans as allowed previously.” This measure is expected to not only provide relief to the MSME sector but also encourage them to repay their loans punctually.

Double loan limits under MUDRA’s Shishu and Kishore categories: PHDCCI has urged to increase the loan limits under MUDRA Yojana across all categories since the project cost for setting up a new venture has almost doubled since the inception of PMMY in 2015. It suggests increasing the limit for the Shishu category from ₹50,000 to ₹1 lakh; from ₹5.0 lakh to ₹10 lakh for the Kishore category; and from ₹20 lakh for the Tarun and Tarun Plus categories.

Restore interest equalisation on export credit: It is recommended that this interest equalisation incentive on export credit should be reintroduced. Further, the revised interest equalisation rates under the scheme were fixed as 3 per cent for MSME manufacturer exporters exporting under any HS lines, and 2 per cent for manufacturer exporters and merchant exporters exporting under 410 HS lines (after excluding 6 HS lines pertaining to the Telecom Sector). “Government should include service exports also in the eligibility for interest equalisation as extended to other sectors.” This, it says, will make MSMEs competitive in the export markets.

Allocate equity support through the Fund of Funds: The association says MSMEs are facing a severe shortage of equity. For this reason, it says there should be separate allocations earmarked out of the corpus of Fund of Funds for providing seed capital assistance to registered start-ups and participating/subscribing a small percentage in the IPO issues of SMEs when they list their equity on the Stock Exchanges.

Extend MSE Facilitation Council coverage to Medium Enterprises: PHDCCI says the government should also allow MSE Facilitation Councils to cover medium enterprises. It says in the provisions made in the MSME Development Act 2006, for the resolution of delayed payment of bills, the medium enterprises have not been covered, and that micro and small enterprises can refer their delayed payments to the MSE Facilitation Councils.

Reintroduce capital subsidy for technology upgradation: The association says the government should provide fiscal incentives and support to MSMEs by reintroducing capital subsidy. The limit of investment should also be increased to ₹2 crore, as the earlier limit of ₹1 crore was fixed almost 15 years ago, it says, adding that this will encourage MSMEs to adopt/ upgrade and install green and eco-friendly technologies.

Remove mandatory tax audits for micro enterprises with turnover up to ₹10 crore: PHDCCI has requested an amendment to Section 44AB of the Income Tax Act, 1961, saying all businesses with an annual turnover of up to ₹10 crore should be completely exempt from the mandatory tax audit under Section 44AB, irrespective of their profit margin or mode of transactions. It says this will cover all micro enterprises, freeing them from the significant cost (₹75,000 – ₹150,000 annually) and administrative burden of arranging a full-fledged audit.