Economic Package Announced By the Finance minister on May, 13 2020

SNAPSHOT OF KEY DIRECT TAX AND OTHER MEASURES ANNOUNCED BY THE FINANCE MINISTER ON MAY 13,2020

The Prime Minister, in his address to the nation on May 12, 2020 had hinted at an economic package that would be announced by the Finance Ministry to build a self reliant India. It is intended that the economic package will cover provision of liquidity, changes in regulations concerning  land, labour laws, taxes etc to various sections of the society and business enterprises, to meet the current situation. It is proposed to incentivise  local enterprises to build local brands and take them to the global level.

On May 13, 2020, the Hon’ble Finance Minister of India (‘FM’) addressed a press conference in which she shared insights on the minute details of the Rs. 20 lakh crore (INR 20 Trillion equivalent to approx USD 265 Billion) economic package (equivalent to 10% of India’s GDP). The measures as announced were focused on Getting back to work i.e., enabling employees, employers and businesses, especially Micro Small and Medium Enterprises (‘MSME’) to resume production and workers back to gainful employment. Thus, the economic package is intended to boost India’s small and medium business set ups, such as cottage industries, home industries and small scale industry (which are considered as the backbone of the Indian economy), as well as the economically weaker sections of the society.

The Finance Minister has announced a slew of measures under the Direct tax law, labour law, real estate laws etc to give impetus to the ailing Indian economy. Furthermore, it is expected that certain other measures shall be announced over the next few days.

This update endeavours to present a snapshot of the key measures announced by the Government on May 13, 2020:

A.  DIRECT TAX MEASURES

1. Extension of due date for payment of disputed tax under Vivad se Vishwas Scheme (VSV)

The timeline to avail the VSV Scheme and to make payment of disputed tax under VSV, without additional payment of 10% tax, has been extended from June 30, 2020 to December 31, 2020. It may be mentioned that owing to the outbreak of the COVID-19 pandemic, the timeline was earlier extended from March 31, 2020 to June 30, 2020.

2. 25% Reduction in existing rates of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS)

A 25% reduction in existing TDS rates has been announced for non-salaried specified payments to residents (such as contractual payments, professional fees, interest, rent, dividend, commission, brokerage, etc.). Furthermore, a 25% reduction has been provided in respect of existing TCS rates for specified receipts. A table depicting the revised rates of key provisions of TDS / TCS has been provided as Appendix A.

The reduced rates of TDS / TCS shall be applicable with effect from May 14, 2020 till March 31, 2021. It has also been clarified that the aforesaid reduction shall not be applicable where tax is required to be deducted at a higher rate due to non-furnishing of PAN / Aadhaar.

3. Extension of Due Dates for various Direct Tax Compliances and Litigation

The due dates prescribed for filing of income tax return for Financial Year (‘FY’) 2019-20 and time limit prescribed for completion of assessment proceedings for Assessment Year (‘AY’) 2018-19 and AY 2019-20 has been extended as under:

Particulars

Existing Due Date/ Time Limit

New Due date/ Time Limit (Post Extension)

Due Date for Filing Tax Return for FY 2019-20 for Individuals

 

July 31, 2020

 

November 30, 2020

Due Date for Filing Tax Return for FY 2019-20 for Companies where Transfer Pricing Provisions are not Applicable

October 31, 2020

November 30, 2020

Due Date for Filing Tax Return for FY 2019-20 for Other Persons whose Accounts are Required to be Audited and Partners of such Firms Falling under Such Category

 

October 31, 2020

 

November 30, 2020

Filing of Tax Audit Report for FY 2019-20

September 30, 2020

October 31, 2020

Assessment Proceeding for AY 2018-2019

September 30, 2020

December 31, 2020

Assessment Proceeding for AY 2019-2020

March 31, 2020

September 30, 2021

 

4. Release of Refunds to Certain Organisations

The FM has promised immediate release of pending refunds to charitable trusts and non- corporate businesses and professions including proprietorships, partnerships, limited liability partnerships and co-operatives.

It is expected that the provisions relating to change in statutory dates and rates shall be given effect through a tax Ordinance, though the Government has issued Press Release to give details of the changes.

B.  RELIEF MEASURES FOR MSMEs

1. The definition of “MSME” has been enlarged to ensure that the benefits available to MSMEs are available to a more number of businesses. The revision in the definition has been done as follows – (i) Increase in investment threshold in order to enable more enterprises to be covered; (ii) Introduction of additional criteria of Turnover threshold; and (iii) Elimination of distinction between manufacturing and service sector                                                                                               

The amended criteria to qualify as MSME has been summarised as Appendix B

2. Collateral free Emergency Credit facility of INR 3 lakhs crores (INR 3 Trillion) shall be provided to eligible1 MSMEs from Banks and Non-Banking Financial Companies (‘NBFC’), up to 20% of entire outstanding credit as on February 29, 2020. The scheme can be availed till October 31, 2020 and shall entail credit with a four year tenure and twelve months moratorium on principal repayment.(1 Borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover shall be eligible)

3. The Government shall provide subordinate debt of INR 20,000 crores (INR 200 Billion) for MSMEs which are Non-Performing Asset or stressed. Further, banks to provide subordinate debt to promoters of such MSMEs equivalent to 15% of existing stake of promoters subject to maximum of Rs. 75 lakhs (INR 7.5 Million).

4. A “Fund of Funds” will be set up for MSMEs with an initial corpus of Rs. 10,000 crores (INR 100 Billion) which will be able to mobilise equity funding of Rs. 50,000 crores (INR 500 Billion) for MSMEs.

5. General Financial Rules shall be amended to disallow global tenders for Government procurement up to Rs. 200 crores (INR 2 Billion) to eliminate unfair competition for MSMEs from foreign companies.

6. All central agencies like Railways, Ministry of Road Transport and Highways and CPWD will give an extension of up to six months for completion of contractual obligations, including in respect of EPC and concession agreements.

C.  PROVIDENT FUND RELATED

1. Under Pradhan Mantri Garib Kalyan Package (PMGKP) [first part of the relief package announced by the government], payments of 12% Employer and 12% Employee contributions were made for the months of March, April and May 2020 into Employees Provident Fund accounts of eligible establishments. The aforesaid support has been extended for further 3 months i.e. June, July and August 2020.

2. For Employee Provident Fund Organization covered establishments, statutory Provident Fund contribution rates have been reduced for both employer and employee to 10% each from existing rate of 12% each for the next 3 months.

                                                                                                                                                                             Appendix A 

 Table Depicting Reduced Rates of Key Provisions of TDS and TCS

 (Applicable for the period May 14, 2020 – March 31, 2021)

S. No.

Section of Income-tax Act along with Nature

of Payment

Existing TDS Rate

Reduced TDS

Rate

1.

193- Interest on Securities

10%

7.5%

2.

194 – Dividend

10%

7.5%

3.

194A – Interest other than Interest on

Securities

10%

7.5%

4.

194C – Payment of Contractors and Sub- Contractors

1% (Individual/ HUF);

2% (Others)

0.75% (Individual/ HUF);

1.5% (Others)

5.

194H – Commission or Brokerage

5%

3.75%

6.

194-I(a) – Rent for plant and machinery

2%

1.5%

7.

194-I(b) – Rent for immovable property

10%

7.5%

8.

194-IA – Payment for acquisition of

immovable property

1%

0.75%

9.

194-IB – Payment of rent by individual/ HUF

5%

3.75%

10.

194-IC – Payment for Joint Development

Agreements

10%

7.5%

11.

194J – Fee for professional or technical services (FTS), Royalty etc.

2% (FTS, certain Royalties, call centre);

10% (others)

1.5% (FTS, certain Royalties, call centre);

7.5% (others)

12.

194K – Payment of dividends by Mutual Funds

10%

7.5%

13.

194M – Payment of commission, brokerage

etc. by an individual or HUF

5%

3.75%

14.

194-O – TDS on e-commerce participants

1% (w.e.f. October

1, 2020)

0.75%

 

S. No.

Section of Income Tax Act along with Nature

of Payment

Existing TCS Rate

Reduced TCS

Rate

1.

206C(IF) – Sale of motor vehicles above Rs. 10

lakhs

1%

0.75%

2.

206C(IH) – Sale of any other goods

0.1% (w.e.f.

October 1, 2020)

0.075%


Note:

The aforesaid table summarizes the reduction of rates of key TDS and TCS provisions. For the full list of TDS provisions which are subject to reduction, kindly refer to the Finance Ministry’s press release dated May 13, 2020 which is available at https://pib.gov.in/PressReleseDetail.aspx?PRID=1623745

                                                                                                                                                     Appendix B

Table Depicting Existing and Revised Definition of MSMEs

Existing MSME Classification

Criteria: Investment in Plant & Machinery or Equipment

Classification

Micro

Small

Medium

Manufacturing

Enterprises

Investment < Rs. 25

Lakh

Investment < Rs. 5

Crore

Investment < Rs. 10

Crore

Service

Enterprises

Investment < Rs. 10

Lakh

Investment < Rs. 2

Crore

Investment < Rs. 5 Crore

 

Revised MSME Classification

Composite Criteria: Investment and Annual Turnover

Classification

Micro

Small

Medium

Manufacturing and Services

Investment < Rs. 1 Crore and Turnover <

Rs. 5 Crore

Investment < Rs. 10 Crore and Turnover <

Rs. 50 Crore

Investment < Rs. 20 crore and Turnover < Rs.

100 Crore 

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