Union Budget 2022-2023: Announcements for MSME Sector
Jan 28, 2023
India has set its sights on becoming one of the largest economies in the world, with a target of reaching a 5 trillion USD economy by the time it becomes a developed nation in 2047. To achieve this ambitious goal, it’s crucial to have a strong micro, small, and medium enterprise (MSME) sector, as well as a thriving industry sector.
To support this growth, the Indian government recently presented the Union Budget 2022-2023, a crucial document that outlines the government’s plans and strategies to strengthen the economy. The budget, presented by Finance Minister Nirmala Sitaraman on February 1st, 2021, places a significant focus on the MSME sector, providing financial support and demonstrating the government’s commitment to the sector’s development.
The budget includes several key announcements aimed at the MSME sector, including financial assistance in the form of business loans, machinery loans, and funding for the development of new products and services. By providing this support, the government is helping to ensure the continued growth and success of the MSME sector, which is vital for India’s overall economic growth and development.
Key highlights of the Union Budget 2022-2023 (updates):
The Union Budget 2022-2023 has highlighted the significance of the MSME sector in India’s economy, as it contributes 30% to the Gross Domestic Product, 40% to exports, and 45% to the country’s overall manufacturing output. To support the growth of MSMEs, the government has announced several initiatives, including:
- Extension of Emergency Credit Line Guarantee Scheme (ECLGS) until March 2023 with a guaranteed coverage of Rs. 50,000 crores
- Updating the Credit Guarantee Trust for Small Micro-Enterprises Scheme (CGTMSE) with a funding injection
- Launch of the ‘Raising and Accelerating MSME Performance (RAMP) program’ to provide additional support to the MSME industry
- One-year extension of customs duty exemption for importing steel scraps
- Interlinking of Udyam, e-Shram, NCS, and ASEEM portal to create a live and comprehensive database
- Use of drone-as-a-service (DaaS) applications by startups under Drone Shakti (DrAAS), with training to be provided through ITIs
- Allocation of 25% of the defense R&D budget for skill-enablement training, making it accessible to startups, companies, and academic institutions
- Establishing a Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in 2000, in collaboration between MSME Ministry and SIDBI, to increase institutional credit access to micro and small firms
- Allocating an additional Rs 2 lakh crore to CGTMSE to provide more collateral-free business loans to MSMEs and startups
- Setting up a capital fund through NABARD to support rural and agribusiness enterprises involved in the farm product value chain. The fund will be established through co-investment.
- Overall, these initiatives aim to provide financial support, improve access to institutional credit, and promote the growth and development of MSMEs and startups in India.
MSME Tax Benefits that will be realized through Union Budget 2022-2023
The Union Budget 2022-2023 has proposed several tax benefits for the MSME sector and startups in India. These benefits aim to promote entrepreneurship and provide loans for MSMEs during their early stages of growth.
For eligible startups, the government has proposed an extension of the tax credit period by one year. This means that startups can now receive tax credits for a continuous three-year period, up until 31st March 2023.
To foster a globally competitive business environment, the government has also introduced a 15% tax on newly established domestic manufacturing businesses. This tax is expected to incentivize the establishment of new businesses and promote economic growth.
Another important change proposed in the budget is the extension of the deadline for beginning production or manufacture under Section 115 BAB. The deadline has been extended from 31st March 2023 to 31st March 2024, providing additional time for businesses to set up operations.
Additionally, the government has offered a one-year extension to the existing customs duty exemption for importing steel scrap. This will help reduce the cost of production for MSMEs and startups involved in the manufacturing sector.
Other Notable Points in Union Budget 2022-2023
- Digital asset transactions that result in revenue will be taxed at a rate of 30%.
- No deduction for acquisition costs will be allowed from income.
- Losses from other income streams cannot be offset.
- Gifts of cryptocurrency will be taxed to the recipient.
- Taxpayers will have a two-year time frame to update returns from the conclusion of the relevant assessment year.
- Alternative Minimum Tax (AMT) will be reduced to 15% for cooperative groups.
- A surcharge of 7% will be imposed on cooperative societies with annual sales between Rs 1 crore and Rs 10 crore.
- Employer contributions to National Pension System (NPS) accounts for state employees will be taxable at a rate of 14%.
The 2022-2023 Union Budget presents a golden opportunity for medium and small businesses in India with the introduction of programs aimed at providing a much-needed boost to the MSME sector. To create 60 lakh new jobs and generate an additional output of Rs. 30 lakh crore, the budget is poised to drive the Indian economy forward from the ground up.
Furthermore, the ambitious proposal to construct over 100 ports under the PM Shakti freight ports program in the next three years holds immense promise for businesses, particularly those in the transportation and logistics industry. This budget serves as a beacon of hope and a catalyst for growth, providing the necessary support and resources to help MSME companies thrive and reach new heights.
What is the Emergency Credit Line Guarantee Scheme (ECLGS)?
The Emergency Credit Line Guarantee Scheme (ECLGS) is a government program that provides business loans to MSMEs with a guaranteed coverage of Rs. 50,000 crores. The scheme has been extended until March 2023.
What is the Credit Guarantee Trust for Small Micro-Enterprises Scheme (CGTMSE)?
The Credit Guarantee Trust for Small Micro-Enterprises Scheme (CGTMSE) is a program that provides financial assistance to small micro-enterprises in India. The budget has announced an update to this scheme, with a funding injection.
What is the Raising and Accelerating MSME Performance (RAMP) program?
The Raising and Accelerating MSME Performance (RAMP) program is a new initiative aimed at providing additional support to the MSME industry in India.
What is the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)?
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a program established in 2000 in collaboration between the MSME Ministry and SIDBI to increase institutional credit access to micro and small firms in India. The budget has allocated an additional Rs 2 lakh crore to this program.