Government takes steps to ease plight of startups, MSMEs, and borrowers

Union Finance Minister Nirmala Sitharaman addressing a press conference, in New Delhi. Also seen is Anurag Thakur, Minister of State for Finance and Corporate Affairs.   | Photo Credit: Sandeep Saxena

The government on Friday announced several decisions to ease doing business in India, including scrapping the ‘angel tax’ for registered startups, expediting GST refunds for the MSME sector, as well as setting a time-bound window for the payment of delayed dues by public sector companies.

“In order to mitigate genuine difficulties of startups and their investors, it has been decided that the relevant provisions of Section 56 of the Income Tax Act, which is commonly called the ‘angel tax’, shall not be applicable to a startup registered with the Department for Promotion of Industry and Internal Trade,” Finance Minister Nirmala Sitharaman said while addressing a press conference to announce the decisions.

The angel tax provision has been a pain point for start-ups who have repeatedly complained that the tax burden was slowing down the angel investments made in new companies.

The government will also set up a dedicated cell under a member of the Central Board of Direct Taxes to address the problems of the startups relating to income tax.

“Exempting startups from the application of the ‘angel tax’ is a good development,” Rohinton Sidhwa, Partner at Deloitte India said. “Previously, the Government has provided this exemption only for investment below a threshold and where only accredited investors were involved. It appears now that the exemption would be cast wider and will cover all ‘registered’ startups.”

Ms Sitharaman also announced that all pending Goods and Services Tax refunds to MSMEs would be made within 30 days, and that all future refunds will be paid within 60 days. This is expected to free up a lot of capital that was otherwise locked up for the MSME sector. The government will also look into amending the MSME Act to arrive at a single definition for MSMEs, to avoid the confusion created by various Ministries and Departments using different definitions.

She also said that the pending payments by Central Public Sector Enterprises (CPSE) to services providers would be expedited and that the delayed payments would be monitored by the Department of Expenditure and the performance would be reviewed by the Cabinet Secretariat.

Further, in a bid to ease the plight of borrowers, Ms Sitharaman said that the public sector banks will ensure the mandated return of loan documents within 15 days of the closure of the loan. Customers will also be able to track online the status of their loans in order to ease transparency.

“To support decision-making and to prevent harassment for genuine commercial decisions by bankers, the Central Vigilance Commissioner has issued directions that the Internal Advisory Committee (IAC) in banks will classify cases as vigilance and non-vigilance,” Ms Sitharaman said. “The decision of the IAC is to be treated as final.”

This move is expected to increase credit outflow by banks as several banks have said that credit decisions have been held up because bank officials have been wary of taking even genuine decisions that could later be hauled up for undue scrutiny.

In a bid to ease the loan disbursal process for the non-banking financial companies, the government has also allowed them to use the Aadhaar-linked Know Your Customer (KYC) details with banks, instead of having to do the KYC process again themselves.

In what should come as considerable relief for the taxpayer, Ms Sitharaman also said that from October 1, 2019, all notices, summons, or orders by the Income Tax authorities will be issued through a centralised computer system and will contain a computer-generated unique Document Identification Number (DIN).

Notices or orders that do not carry this DIN will be treated as invalid, she said, which should go a long way in addressing the instances of alleged harassment by income tax officials.

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Printable version | Oct 22, 2021 3:15:14 PM |

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