Budget 2017-18: FM trims tax on MSMEs with turnover below Rs50-cr to 25%

Finance minister Arun Jaitley announced a reduction in income tax to 25 per cent for smaller companies with annual turnover upto Rs.50 crore.

Presenting the General Budget 2017-18 in Parliament today, the minister said this will  make micro, small and medium enterprises (MSMEs) more viable, and encourage them to migrate to the company format.

As per data of assessment year 2015-16, there are 6.94 lakh companies filing returns of which 6.67 lakh companies fall in this category and, therefore, percentage-wise 96 per cent of companies will get this benefit of lower taxation.

''This will make our MSME sector more competitive as compared to large companies. The revenue forgone estimate for this measure is expected to be Rs7,200 crore per annum'', he said.

The minister said it is not practical to remove or reduce minimum alternate tax (MAT) at present.

However, in order to allow companies to use MAT credit in future years, he proposed to allow carry forward of MAT upto a period of 15 years instead of 10 years at present. MAT is at present levied as an advance tax. Although the plan for phasing-out of exemptions will kick in from April 1, 2017, the full benefit of revenue out of phase-out will be available to the government only after 7-10 years when all those who are already availing exemptions at present complete their period of availment.

Other budget proposals taken by the government for stimulating growth include extension of a concessional with-holding rate of 5 per cent being charged on interest earned by foreign entities in external commercial borrowings or in bonds and government securities to June 2020 from June 2017. This benefit is also extended to rupee denominated (masala) bonds.

In his last Budget, Jaitley gave income tax exemptions to start-ups with certain conditions. For the purpose of carry forward of losses in respect of such start-ups, the condition of continuous holding of 51 per cent of voting rights has been relaxed subject to the condition that the holding of the original promoter / promoters continues.

Also, the profit linked deduction available to the start-ups for 3 years out of 5 years will be changed to 3 years out of 7 years.