MSME players in pre-Budget talks seek collateral-free credit, relaxed NPA norms, and tax reliefs to offset the impact of a 50% US tariff hike on exports and ease liquidity pressures
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They also urged allowing GST refunds on purchases of plant and machinery, noting that manufacturers currently cannot claim input tax credit refunds on capital goods, which increases upfront investment costs.
Micro, small and medium enterprise (MSME) players on Wednesday urged the central government to revise the rule for classifying loans as non-performing assets (NPAs) by extending the recognition period from 90 days to 180 days, citing long payment cycles and supply-chain disruptions.
In a pre-Budget meeting with Finance Minister Nirmala Sitharaman and finance ministry officials, MSME representatives sought an increase in the limit for tax-free conversion of private companies into limited liability partnerships. The current limit — ₹60 lakh turnover or ₹5 crore in assets — was set in 2009. They want this raised to ₹50 crore for both turnover and assets, in line with the Micro, Small and Medium Enterprises Development Act. They have also proposed a one-time amnesty for such tax-free conversions.
For small and growing companies, the representatives have asked for removal of the dividend tax for firms with turnover up to ₹1,000 crore. They said the combined burden of corporate income-tax and dividend tax discourages entrepreneurs from incorporating their businesses.
Under the goods and services tax (GST) system, MSMEs have pointed to problems caused by the inverted duty structure following the merger of slabs under GST 2.0. In some cases, inputs are taxed at 18 per cent while final goods attract 5 per cent, locking up working capital. They have proposed an 8 per cent concessional GST rate on inputs used in such cases and automatic, time-bound GST refunds. They also suggested allowing GST refunds on purchases of plant and machinery. At present, manufacturers cannot claim input tax credit refunds on capital goods, increasing the upfront cost of new equipment.
On the manufacturing and export front, MSMEs have raised concerns about the growing number of quality control orders (QCOs) on inputs and intermediate goods, saying these have disrupted production and exports. The sector has proposed a self-certification system or verification at ports, and suspension of QCOs where domestic capacity is inadequate.
They have also suggested launching a Technology Mission for MSMEs to identify and bridge technology gaps across clusters. Another proposal is to promote private trading houses to support MSME exports, similar to global trading companies such as Mitsui and Cargill.
For ease of doing business, MSMEs have requested an increase in the mandatory tax audit limit from ₹1 crore to ₹5 crore. They have also sought a revision of the thresholds for corporate social responsibility obligations. The current limits — ₹500 crore turnover and ₹5 crore profit — were fixed a decade ago. The sector has suggested raising these thresholds and linking the profit condition to 10 per cent of turnover instead.
Key suggestions
- Increase in limit for tax-free conversion of private companies into LLPs
- Proposed launching technology mission to identify technology gaps
- Increase in mandatory tax audit limit from ₹1 crore to ₹ 5 crore
- Removal of the dividend tax for firms with turnover up to ₹1,000 crore
- Proposed an 8 per cent concessional GST rate on inputs
- Allowing GST refunds on purchases of plant and machinery
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