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eBudget 2020: Its Impact On GST And Small Business Owners

The finance minister Smt. Nirmala Seetharaman presented the Union Budget 2020 on 1st February 2020. She focused on reforms that would strengthen the Indian economy with the help of short-term and long-term measures. There were three vital themes of the Budget; aspirational India, economic development for all, and caring society.

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Highlights Of The Indian Budget 2020

The following are some of the budget highlights.

  • There have been changes made with regards to the income tax slab. Taxpayers have the ability to choose between the new regime and the old regime.
  • The new tax regime has lowered the India budget income tax rates and slashed them in some cases to reduce tax paid by individuals.
  • The new regime states that people who earn up to 5 lakhs do not need to pay taxes. Those who earn Rs. 5 lakh to Rs. 7.5 lakh need to pay 10% tax.
  • The new regime states that people who earn Rs. 7.5 lakh to Rs. 10 lakh need to pay 15% tax and those who earn Rs. 10 lakh to Rs. 12.5 lakh need to pay a tax of 20%.
  • People who earn Rs. 12.5 lakh to Rs. 15 lakh need to pay 25% tax while those who earn Rs. 15 lakh and above need to pay 30% tax rate.
  • The finance minister has said that 70 exemptions and income tax deductions have been taken out in order to make the tax system and income tax return simpler.
  • The DDT or Dividend Distribution Tax has been abolished. This means that companies no longer need to make payment towards DDT.
  • A new tax regime has been put in place where new power generation companies are required to pay 15% tax so that high demands of energy needs can be met.
  • Tax reduction has occurred in cooperative societies as these are required to pay just 22% now without any exemptions. Earlier, it was 30%.
  • The government will put measures in place to ensure that contracts are respected.
  • The government will roll out a new scheme called Vivaad se vishwaas which is a direct tax dispute settlement scheme.
  • Taxpayers will be verified by aadhaar to ensure non-existent units are removed and found.
  • The government has proposed that PAN will be allotted online based on Aadhaar.
  • Online registration of charity institutions will be done so that the donations are pre-filled in the IT return form. This helps make claim exemptions easy and quick.
  • A proposal has been put forward to increase the excise duty on cigarettes and tobacco products.
  • A reduction in the customs duty from 10% to 5% has been proposed for light-weight coated paper and newsprint imports.
  • The medical devices that have been imported and exempt from BCD will not have a health cess imposed. However, the other imports will have 5% health cess imposed on them.
  • Raw materials such as chemicals, fuse and plastics will have a lower customs duty compared to earlier.
  • The customs duty will increase on those items that are being made domestically such as chemicals.
  • Changes have been made to increase the customs duty on imported electric vehicles as a move to boost local production.
  • The defence budget will get Rs. 3.37 lakh crore which has seen an increase of 5.8% from the previous year.
  • Currently the depository insurance is Rs. 1 lakh but the new proposal is to increase it to Rs. 5 lakh.
  • Changes will be made to the Banking Regulation Act in order to boost the Cooperative banks.
  • A new common entrance test will be made for public sector banks and non-gazetted government jobs.
  • To fulfill the demand for care-givers, teachers, para-medical staff, and nurses, special courses will be designed by the Ministries of Health and Skill Development.
  • Using the PPP model, new smart cities will be introduced.
  • To boost the transportation sector, Rs. 1.7 lakh crore will be allocated.
  • To boost the UDAN scheme, over 100 airports will be set up by 2024.
  • Highways will be developed especially the Delhi-Mumbai expressway and two others by the end of 2023.
  • The finance minister has stated that Rs. 2500 crore has been allocated for promoting tourism.
  • Renovation of 4 museums has been proposed.
  • There has been a proposal that the Ministry of Culture will have Indian Institute of Heritage and Conservation.
  • A proposal has been put forward to shut those thermal plants which don’t meet the criteria of the emission norms.
  • The finance minister has stressed that all the UTs and states should use pre-paid smart meters to replace the conventional energy meters. This will enable the consumers to choose according to their requirements.
  • 150 new trains have been proposed to be introduced on the PPP basis.
  • A proposal to set up big solar power capacity on the land that is owned by the Railways has been put forward.
  • A New Education Policy will be announced by the government.
  • The education sector has been allocated Rs. 99,300 crore while Rs. 3,000 crore has been allocated for development of skills.
  • An exam that is similar to SAT will be held in Asian and African countries for those students who wish to study in India.
  • National Forensic Science University and National Police University have been proposed to teach forensic science, policing science, and cyber-forensics.
  • The government will help 20 lakh farmers to set up solar pumps.
  • For better transportation of perishable goods, the railways will set up the Kisan Rail with the help of PPP.
  • SHGs expansion will be done in order to alleviate poverty.
  • By 2022 or 2023, the fish production is proposed to increase to 200 lakh tonnes.
  • Rs. 69,000 crore allocated to the healthcare sector.
  • Rs. 12,300 crore has been proposed for Swacch Bharat and Rs. 3.6 lakh crore has been allocated for water sanitation project.
  • The finance minister has proposed the use of AI and machine learning for designing prevention measures for targeting diseases.

Changes Introduced To GST in Budget 2020

­The finance minister introduced many important amendments to the Central Goods and Service Taxes or CGST that you should know about. When the President approves these GST amendments, then they will be passed with the help of the Finance Act, 2020. The main CGST amendments that have been made in Budget 2020 are as follows along with highlights that you should be aware about.  

  • The definition of Union Territory now includes Ladakh, Daman and Diu, and Dadra and Nagar Haveli.
  • If a person is found to take part in a fake Input Tax Credit or ITC under GST then he will be required to pay a 100% tax involved as penalty. This stands true if the person has somehow benefitted from the fake ITC too.
  • Earlier, the person who commits a fraud with regards to availing ITC without bill was the only one who got punished. Now, the CGST Act has been changed to extending the imprisonment of those people who cause to commit and those who retain the benefit too.
  • Taxpayers who supply their services outside of their state cannot avail the Composition Scheme exempting supplies or if they make supplies through TCS liable e-commerce operators.
  • The date on the debit note can enable you to avail the Input Tax Credit that comes under GST rather than the date of the invoice.
  • The late fee which was Rs. 200 per day for a maximum of Rs. 5000 for failure to issue the TDS certificate will no longer be in effect as it has been waived off. Moreover, the government will be empowered as it makes the rules to provide and how the TDS form will be issued.
  • The Budget 2020 has introduced a new provision in which voluntary GST registration can be cancelled for distinct people.
  • The Additional Commissioner and Commissioner have the power to approve the delay that occurs when applying for cancellation revocation for a period of 30 days.
  • The retrospective effect has been given w.e.f. July 1st, 2017 barring the refund that is the result of inverted tax on tobacco products.
  • The supply of products, pulley, and wheels that were used in Agriculture machinery will be applicable for 6% CGST or GST tax rate from 1st July 2017 to 31st December 2018.
  • A retrospective GST exemption has been provided to the supply of fishmeal from 1st July 2017 to 30th September 2019.
  • The time limit to issue the removal of difficulty order has been changed to five years from 1st July 2017 compared to the earlier time limit of three years.
  • The approval of the Board is no longer a requirement to determine the special audit expense.
  • The government will specify which tax invoice will be issued and create rules that will determine the time and the way in which the issuance will take place for particular categories of supplies and services.
  • A provision to extend the period for return of capital goods or input by a job worker has been put in place.  
  • Changes have been made to the CGST Act, Schedule II on the ‘Transfer of business assets’ as the ‘whether or not for a consideration’ phrase has been removed to give more clarity to the meaning of the paragraph.

Impact Of Budget 2020 On SMEs And Startups

The Union Budget had many vital announcements regarding SMEs. The finance minister started by stating the numerous benefits of GST. She stated that the reduced GST rates in India helped households save approximately 4% on their monthly expenses which is a major bonus. Moreover, due to the GST slab rates Rs. 1 lakh crore has been saved and this has been directly beneficial to the consumers due to the reduced rates. The finance minister stated that SMEs have benefited from GST too. She agreed that there were difficulties along the way but the GST Council helped to give solutions which helped make the transition easier.

Smt. Nirmala Sitharaman stated that more than 60 lakh new taxpayers were added in the past two years and over 40 crore returns have been filed as a result. There are more than 100 crore e-way bills that were generated and more than 800 crore invoices uploaded. The finance minister said that a simple new return system will be introduced on 1st April 2020. She stated that the GeM or Government e-Marketplace will create a Unified Procurement System. This will help provide a mainstream platform that will help procure services, works, and goods. She stated this will help MSMEs. More than 3 lakh vendors are already part of the platform.

The Budget emphasized that MSMEs will become competitive. This will be done with the help of a National Logistics Policy that will be provided. The aim of this is to make it clear about what the state governments, union government, and regulators are responsible for. This role clarification will make things easier. In addition, the focus will be shifted to employment generation and improving skills. Another proposal is to make amendments to the Factor Regulation Act 2011. Once amendments are made, the NBFCs will be able to use TReDS to increase the period of invoice financing. This can help boost financial sustainability of various MSMEs.

The restructuring of debt permitted by RBI was supposed to end on 31st March 2020. There are more than 5 lakh MSMEs that profited from this move which took place last year. The government has requested the RBI to extend it for another year until 31st March 2021. The finance minister stated that an app for financing loans will be launched and this will help the MSMEs. The reason is that the app will help minimize the cash flow mismatches and it will help remove the problems of delayed payments that are often quite problematic to MSMEs.

One of the difficulties faced by MSMEs is the working capital credit. The finance minister proposed that a scheme be introduced whereby the MSME entrepreneurs will be provided subordinate debt. Banks will provide the subordinate debt to the entrepreneurs and this will resemble the quasi-equity which functions like an equity but has properties of debt. The guarantee will come from the CGTMSE or Credit Guarantee Trust for Medium and Small Entrepreneurs. The government will make the necessary changes to the CGTMSE to incorporate this new scheme into it so that SMEs can benefit from it.

The total allocation has seen quite an increase for the Ministry of MSME. The SFURTI or Scheme Fund For Regeneration of Traditional Industries has increased to more than Rs. 450 crore from Rs. 125 crore. The Coir Vikas Yojana has seen an increase of Rs. 30 crore from the previous Rs. 70 crore to Rs. 103 crore at present. The outlay to the Establishment of New Technology Centres has been increased from Rs. 125 crore from earlier to more than Rs. 200 crore at present. The scheme outlay for Infrastructure Development Programmes has increased to more than 58%; from Rs. 922 crore to more than Rs. 1450 crore.

The budgetary allocation for MSME sector has risen 8% to Rs. 7572 crore. Those businesses which have a turnover that exceeds Rs. 1 crore need to have audits done by an accountant. The finance minister has proposed that instead of Rs. 1 crore turnover, a turnover of Rs. 5 crores will require an audit by an accountant. This move will reduce the stress related to compliance on shopkeepers, small retailers, and traders that come under the MSME sector. The vital point to remember is that this will only apply to businesses which have 5% or less transactions in cash. If that is not the case, then the new proposal won’t apply to those businesses in the MSME sector.

A new scheme is proposed by the finance minister whereby MSMEs in certain sectors will be provided support of Rs. 1000 crore. These sectors include technology upgrades, auto components, R&D, pharmaceuticals, and business strategies. The move is going to make the export more competitive which will further boost MSMEs. The National Textile Mission has been allotted Rs. 1480 crore which will help it become more competitive. The scheme states that National Logistics Policy will be allotted as well to the National Textile Mission which will help it become more competitive in the market.  

Those sectors of MSMEs that are labor-intensive are important because they create more jobs and boost employment. When there are imports that are cheap then they can have a negative impact on the domestic MSMEs since they block the growth of the MSMEs. This is why the customs duty is being raised on footwear from 25% earlier to 35% now. There has been an increase in customs duty of furniture from 20% earlier to 25% now. A higher customs duty on particular goods such as chemicals and auto-parts is proposed by the finance minister as these goods are currently being made domestically. This will help boost the growth of MSMEs.

Impact of Budget 2020 on Startups

The Budget has something for startups as well. The government has proposed to give early life funding. This will include the seed fund which will help develop the early stages of the startups and it will support the ideation process too. Another move to help the startups was the ESOP. Tax is imposed on ESOPs at present which has led to cash flow problems for those employees who hold shares for a long time instead of immediately selling them. The finance minister has suggested that the tax burden can be eased by delaying paying the tax until the employees leave the company or until they pay after five years or until they sell their shares.

Initially, those startups that had a turnover of up to Rs. 25 crore were allowed profit deduction of 100% provided the total turnover did not exceed Rs. 25 crore for three consecutive assessment years. This was out of 7 years. The finance minister has now suggested that the turnover be increased to Rs. 100 crore and the claim of deduction be allowed up to 10 years instead of the existing 7 years. This is beneficial for large startups. Moreover, since the startups may not have sufficient profit for getting the deduction in the initial times, this is a breather and will help all types of startups.  

Speaking of fund allocations, there have been certain cuts in many credit schemes. The most talked about is the Credit Support Programme that has to bear a cut of over 80%; from Rs. 597 crore to Rs. 100 crore now. The Interest Subvention Scheme for Incremental Credit to MSMEs has been cut to Rs. 200 crore from the previous Rs. 350 crore. This was one of the useful schemes that has taken a cut. The Market Promotion Schemes has many sub-schemes and many of these have been reduced by over 40%; from Rs. 123 crore earlier to Rs. 74 crore now. Another scheme known as the Marketing Assistance Scheme or MAS saw a cut from Rs. 10 crore to Rs. 0.04 crore.

While the Fund for Funds allocation has doubled from Rs. 100 crore to Rs. 200 crore, the MSME Fund has been cut by 50%. The International Cooperation Scheme was allocated Rs. 30 crore earlier has now been reduced to Rs. 20 crore. Another cut was seen in the Technology Upgradation and Quality Certification schemes where earlier the allocation was at Rs. 755 crore and now it is at Rs. 683 crore. ASPIRE which is one of the important schemes for rural entrepreneurs saw a cut of Rs. 20 crore; from Rs. 50 crore to Rs. 30 crore. Another scheme called Credit Linked Capital Subsidy and Technology Scheme had a reduction in allocation by over Rs. 50 crore.

Conclusion

The Budget 2020 by finance minister Smt. Nirmala Sitharaman focused on making India more competitive and boosting the domestic industries. While allocations increased in many sectors and considerations were made to reduce or take away anything that was not in favor, some sectors saw cuts too. The finance minister assured that wealth creators will be protected with this budget while incomes will get a boost as people will have an improved purchasing power. The finance minister made changes to the GST and promised that the budget will help revive domestic growth by focusing on various aspects of it.

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