MSME Budget 2020: All Highlights of the MSME and Startup Budget

The Union Budget 2020 was unveiled by Finance Minister Nirmala Sitharaman on February 01, 2020, at 11 AM IST. In a 2 hour-43 minute-long speech, Sitharaman covered quite a few pointers for the MSME and startup sector. Here are all the highlights of the MSME budget 2020.

In case you missed it, we LIVE tweeted the entire budget session. We are also including our reaction to each of these points. Take a look.

Highlights of MSME Budget 2020

1. No audit examination for businesses with an annual turnover of up to ₹5 CR:

Earlier, any business with an annual turnover of ₹1 CR would have to maintain and get their books of accounts examined by an external auditor. To help reduce the compliance burden and encourage online payments, the government has raised the threshold to ₹5 CR.

Our reaction: ⭐

2. App-based Invoice Financing for MSMEs:

To ensure the MSME sector has enough funds available for operations, the government has proposed to launch an app-based invoice financing loan product that could help small businesses with their cash flow problems.

What’s more? NBFCs will now be able to offer invoice-based loans to small and medium enterprises through the TReDs platform to ensure viability and sustainability.

Our reaction: 👍

3. RBI to consider extending debt restructuring scheme until March 2021:

The MSME sector was expecting a distressed fund to help bail them out of the dire financial situation. The Sitharaman budget obliged by urging the RBI to extend the debt restructuring scheme to March 2021.

According to Sitharaman, over 500,000 MSMEs benefitted from the debt restructuring scheme launched last year. The restructuring was a one-time scheme that allowed defaulting MSMEs to revise the loan tenor and interest rate for up to ₹25 CR.

Our reaction: 👍

4. ₹27,000 CR allocated for GeM development:

The Government eMarketplace was introduced in the 2019 budget to have a one-stop platform to procure goods and services for all government needs. In budget 2020, Sitharam mentioned there were 3.24 Lakh vendors on the platform that the government has been sourcing from.

For this, a hefty sum of ₹27,300 CR has been allocated to the development of GeM and the businesses onboard the platform.

Our reaction: 👍

5. Subordinate Debt Scheme for MSMEs:

Emphasizing how working capital has always been a problem for small and medium enterprises in the country, a new debt scheme has been talked about in the MSME budget 2020.

Also, a special hand-hold allocation of ₹1000 CR via the EXIM bank has been made to help MSMEs in the pharma and auto components sector.

Our reaction: 👌

6. New seed fund for startups + investment cell for general business development introduced:

Two new funds are proposed to be set up for startups and business development in general. In the 2020 budget speech, Sitharaman mentioned that the seed fund would allow new and early-stage startups to access the funds to grow.

Speaking of the investment cell, the finance minister said that this would govern the overall development and ease of business for entrepreneurs in the country.

Our reaction: 👍

7. No tax on profits for startups with turnover below ₹100 CR:

To give the startup community a tax relief, the budget 2020 outlined that any startup with a turnover of below ₹100 CR will not have to pay tax on profits for a period of up to 10 years. Earlier, this timeline was for 7 years.

Our reaction: 👌

8. Startup ESOPS tax payments deferred for 5 years:

As several startups use ESOPS or employee stock options to attract and retain talent in the company, Sitharaman said that the tax on ESOPS becomes a burden on these companies. The tax burden also affects cash flow thereby hampering growth and operations.

To ease this, the budget 2020 has proposed to defer the payment of ESPOS tax for 5 years.

Our reaction: 👌

9. Aadhaar-based GST verification & QR codes in invoices

Sitharaman opened the budget speech with a mention of simplifying GST returns for businesses. While not too many details were disclosed, the finance minister said Aadhaar-based technology will be used to verify and check fraudulent GST filings.

Additionally, dynamic QR codes will be available in GST invoices for customers to make online payments.

Our reaction: 🤔

Instamojo take on MSME Budget 2020:

Although the union budget 2020 was halted before Nirmala Sitharaman could complete her speech, she covered several pointers including improving infrastructure to help remove boundaries for MSME businesses.

The pointers presented in the budget are great for MSMEs but also contain loopholes that could increase fraud at micro-levels. Having said that, the seed fund for startups and subordinate debt schemes was the much-needed relief for the small business sector.

Policy relaxations and MSME inclusions/ exclusions were barely touched in the budget.

Overall, we would give the proposed MSME budget 2020a 3.5 rating out of 5.

Did it meet expectations? Let us know in the comments below.


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