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Different Tax Incentives and Sops Available To Small Businesses Under Budget 2017


Small and Medium Enterprises or SMEs of India contribute an 8% share in the overall GDP of the country. Much of it i.e. nearly 45% contribution is made towards the manufacturing sector and 40% to the exports. So, in all the entire sector has an important role to play in the nation's economic growth. To promote the sector, few of the tax sops have been allowed for the small businesses in the Budget 2017 which are listed in detail here.

Different Tax Incentives and Sops Available To Small Businesses

1. Income Tax rate lowered to 25% to promote firms to migrate to company format: For small businesses with turnover of Rs. 50 crore or less, a tax @ 25% shall be applicable. The tax has been lowered to foster a sense of organization among firms and at the same to be more compliant with the legal procedures. The reduction in tax is also aimed at increasing the viability of these concerns.

The reduction in tax will mean a direct benefit to 96% companies and the estimated total revenue forgone on this account is kept at Rs. 7200 crore on an annual basis.

2. Minimum Alternative Tax Extended: In the budget 2017, carry forward with respect to MAT shall be extended for a period of 15 years in comparison to the previous 10 years. The provision offers companies with an additional time frame of 5 years to finally pay off their MAT dues.

MAT is a tax applied on companies that despite making huge profits do not come under tax net owing to some exemptions, deductions or incentives. So, a minimum tax rate arrived at by special calculation is payable by such companies. All companies besides those in the power and infrastructure sector need to pay the MAT.

3. Income Tax holiday extended to enable business focus on growth: Out of the seven years tenure of the startup company, the liability to pay income tax shall arise only in case if the company makes profit. Also, the tax has to be paid in lieu of only three years of operations. Importantly, the provision is available to business set-ups recognized by the DIPP or Department of Industrial Policy and Promotion.


4. Carry forward of losses for start ups has been relaxed in respect to continuous 51% holding of voting rights by the promoter: The relaxation has been brought under the circumstance that holding of the promoter or promoters continues in the business.

Businesses in general are allowed to carry forward their losses for a period of 8 years.

5. Digital payment receives a boost with 6% presumptive taxation: Companies with a turnover of upto 2 crore shall be able to pay tax on presumptive basis @ 8%. However, in a case when the receipts are generated by digital means, the tax rate of 6% shall be applicable.

6. Doubled the lending target: To boost the sector, the Finance Minister in his budget 2017, announced a total spending of Rs. 2.44 lakh crore on financing the SMEs.

7. Digitalization and Digital India promoted : To connect rural areas, government has earked a substantial corpus of Rs. 10000 crore for its Bharat Net Project aimed at increasing the cover of optical fibre cables to more than 1.5 lakh gram panchayats.

Read more about: sme small business start up tax sops
Story first published: Thursday, June 1, 2017, 12:07 [IST]
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