Union Budget 2017: Abating Taxes Gives SMBs the Much Awaited Encouragement The government proposed to reduce the Income Tax for those companies with an annual turnover of upto Rs 50 crore to 25%. This aims to give the MSMEs a reduction of 5% from the current applicable rate of 30 percent

Over the last couple of months, the micro, small and medium enterprises have grappled with the implications of demonetization. Arun Jaitley's budget on Wednesday came as a breather to the SME and MSME sector.

The government proposed to reduce the Income Tax for those companies with an annual turnover of upto Rs 50 crore to 25%. This aims to give the MSMEs a reduction of 5% from the current applicable rate of 30 percent. The measures taken are aimed at enabling this sector to stand tall against the larger and well-funded companies. The MSME and SME sector have continuously been under the radar for taking the digital route using minimum investments.

Eagerly awaited move

K. Madhavan, MD, of Indian mattress company Peps Industries said, "The only highlight in the budget is the reduction of income tax for the Micro and Medium manufacturing industry. This will increase the capability of companies to work successfully- a good sign of encouragement and it is welcomed. The previous budget had offered customs excise sops, so there wasn't much of an expectation there. When GST is implemented, there would be more clarity on this, and we are eagerly awaiting the same."

Reducing income tax by 5% for MSMEs with under Rs 50 crore in turnover will provide a huge boost to the spirit of entrepreneurship in the country, Sashank Rishyasringa, Co-founder and Managing Director, Capital Float said.

Time to go digital?

Under the governance of Indian Prime Minister Narendra Modi, the government has continuously strived to carve a digital economy. The SME sector, which forms an integral part of the economy, has always struggled to move towards digitization due to lack of eligible manpower and finances.

PM Modi had introduced last month, a set of incentives for this domain aimed at strengthening this sector.

Bringing down the corporate tax rate to 25% for MSME is much welcome as well as reduction in personal income tax rates for the lower end of salaries, Srividya Kannan , Founder, Director – Avaali Solutions said.

Varun Rathi, COO & CO-founder of Happay said, "We would like to see how quickly these policies come into action. We are hoping that government will work on the bottlenecks like increasing the limit of IMPS transactions, which still remains a major concern for businesses who want to make urgent transaction."

Certain grievances

While the reduction in tax brought in some cheer, some industry folks noted that the measures required in terms of employment and kick-starting supply chains has not been addressed in the budget for the MSMEs.

Traditional handloom and cottage industries didn't have much mention in the budget as well. "Was looking forward for the Government to take more proactive actions on areas like handloom and tourism that has huge potential for India. Would have also loved it if they announced developing handloom parks or heritage parks across the country with better facilities," Manoj Gupta. Co-founder of Craftsvilla said.

While the steps taken today signal a step towards betterment of the SME sector, it will take time to understand how this domain takes advantage of the reform implemented.