COVID-19 Economic
Relief Package Part-1
Finally,
Modi Ji has come up with his grand 20 Lakhs Crores Relief package which seems nothing
less than Lenskart depositing money in your Lenskart account. Businesses which
are on ventilators require oxygen to survive but government has given medicines
to them which will hopefully work in 3 months. Below are the measures from
first part of the package.
1.
Government has decided to reduce
TDS/TCS deduction rate by 25% for the period 14.05.2020 to 31.03.2021. Some of
commonly used sections given below with reduced rates.
|
Section
|
Nature of Payment
|
Existing Rate of TDS
|
Reduced rate
|
|
194A
|
Interest other than interest on
securities
|
10%
|
7.5%
|
|
194C
|
Payment of Contractors and
sub-contractors
|
1% (individual/HUF)
2% (others)
|
0.75% (individual/HUF)
1.5% (others)
|
|
194H
|
Commission or brokerage
|
5%
|
3.75%
|
|
194-I(a)
|
Rent for plant and machinery
|
2%
|
1.5%
|
|
194-I(b)
|
Rent for immovable property
|
10%
|
7.5%
|
|
194-IA
|
Payment for acquisition of
immovable property
|
1%
|
0.75%
|
|
194-IB
|
Payment of rent by individual or
HUF
|
5%
|
3.75%
|
|
194-IC
|
Payment for Joint Development
Agreements
|
10%
|
7.5%
|
|
194J
|
Fee for Professional or Technical
Services (FTS), Royalty, etc.
|
2% (FTS, certain royalties, call
centre)
10% (others)
|
1.5% (FTS, certain royalties, call
centre)
7.5% (others)
|
|
194K
|
Payment of dividend by Mutual Funds
|
10%
|
7.5%
|
|
194M
|
Payment to contractor, professional
fees, commission, brokerage etc. by Individual and HUF who are not liable to
deduct TDS u/s 194H, 194C and 194J
|
5%
|
3.75%
|
|
194-O
|
TDS on e-commerce participants
|
1%
(w.e.f. 1.10.2020)
|
0.75%
|
|
TCS
Rates
|
|||
|
206C(1F)
|
Sale of motor vehicle above 10
lakhs
|
1%
|
0.75%
|
|
206C(1H)
|
Sale of any other goods exceeding
Rs.50 Lakhs.
|
0.1%
(w.e.f 01.10.2020)
|
0.75%
|
*No reduction of rates where
tax is required to be deducted at higher rate due to non-submission of
PAN/Aadhar.
2. Reliefs for MSME sector
a. Emergency Working Capital facility in form of
Term Loans:
Who
is eligible?
MSME units having borrowings less then 25Cr and
Turnover less then 100 Cr. Which is not a Non performing Assets (NPA) for Bank.
What
is the relief?
20% of outstanding borrowing as on 29.02.2020 in
form of a Term Loan at Concessional Interest Rate without any security.
Any
other points to be noted?
Scheme is available till 31.10.2020. Term loan
will have 4 year Tenor with 12 months moratorium period (i.e. No Principal
payment in first year of loan).
b. 20000 Crore Subordinate Debt for stressed MSME
Who
is eligible?
MSME which are NPA or are stressed.
c. Equity infusion for MSMEs through fund of
funds.
Unlike a Bank loan, the amount will be invested
as equity into viable MSME businesses which have the potential for exponential growth.
The Daughter Funds will own a certain percentage of the business, instead of
charging a monthly interest / repayment of principal through EMIs as is the
case in debt funding.
What
will be the conditions for being eligible?
1.
This scheme will only be applicable only for
existing profitable MSMEs with a proof of concept, a well differentiated
business model, a monopolistic market share at present or in the future (based
on strong entry barriers / Intellectual Property, etc).
2.
Only businesses which are growing
exponentially / have the potential to grow exponentially, into a large
enterprise within 5–7 years and have an IPO, are likely to attract investments
from the Daughter Funds.
3.
Promoters with a strong background, and MSME
units with a strong Team, sound corporate governance framework and succession
plans, will have an edge over other similar MSME businesses trying to raise
funds through the Daughter Funds.
4.
Similar to start-up investment funds, the
only way the Daughter Funds can expect to get its money back, with some
returns, is through M&A or IPO of the MSMEs in which they invest (the
portfolio companies). Meaning, the daughter funds are likely to have a fund
life of 7–10 years in which it must invest into MSME businesses and get as much
back through M&A or IPO of portfolio companies as possible.
5.
This scheme is not going to benefit
traditional MSME businesses which do not have any innovative processes /
intellectual property / monopolistic market share, and will likely benefit
MSMEs working in the start-up mould.
d. MSME Definition Revised
Remarks/Analysis:
At the end there is no direct benefit
given to support the industry which is on ventilator it’s just collateral free
loan that too up to 20% extent. One may also note that most of the loans which
is outstanding on 29.02.2020 were given based on certain security. Banks had
given such loan up to certain extent of security i.e. 50-70% of the valuation.
This additional Covid-19 relief loan will be easily covered up by that
collateral security already mortgaged with bank in remaining valuation of such
security. Also things appears much easier on news and announcement but one has
to look into ground reality also to provide an actual relief. In order to pass
an actual relief government may announce benefits in form of subsidy and
grants.
There is no relief for MSME units
which are not having any outstanding loans but due to this pandemic now require
funds to get back into operating stage.
How Working Capital Limit will be computed?
Banks compute Maximum Permissible
Bank Finance (MPBF) for working capital based on certain percentage of
estimated turnover. A large number of MSME have already availed MPBF. At
present stage most of the MSME lost turnover to the extent of one quarter
resulting in low turnover. In such case how banker will agree to fund by going
beyond MPBF this has to be look upon.
Also working capital cycle of various
MSME’s has increased to 200-210 days wherein Drawing limit calculation has
certain crietaria based on Receivables upto 90 days.
These all are the few out of many ground
problems which will come across in order to reach the benefits into the hands
of the needy.
3. Direct Tax Measures
a.
All pending refunds to charitable trusts and noncorporate businesses
& professions including proprietorship, partnership, LLP and Co-operatives
shall be issued immediately.
b.
Income Tax Return due date increased for non-audit assessee to 30.11.2020
and for audit assessee’s to 31.10.2020.
c.
Date of assessments getting barred on 30th September,2020 extended to
31st December,2020 and those getting barred on 31st March,2021 will be extended
to 30th September,2021.
Remarks:
No
refund relaxation is given for Companies. It would be much helpful if
government could prescribe some electronic process for the refunds which are
stacked up on the desk of Assessing Officer or still not processed by the CPC Bangalore.
Anyways questions should arise that how this is a relief, people are only
getting money which is due to them.
4. Relief with respect to
Provident Fund
a.
The scheme introduced as part of PMGKP
under which Government of India contributes 12% of salary each on behalf of
both employer and employee to EPF will be extended by another 3 months for
salary months of June, July and August 2020.
Who is eligible for
PMGKP Scheme?
Establishment having less then 100 employees with
90% of them having wages less than Rs.15000/-.
b.
Statutory PF contribution of both employer
and employee reduced to 10% each from existing 12% each for all establishments
covered by EPFO for next 3 months.
Who is eligible?
All establishments covered under EPFO.
Remarks:
Apparently, it is not clear that whether
employer will pass on this benefit of 2% to employees in hand salary. Ideally
employees’ take-home salary should increase by 2% through this relief, however
if such relief not pass on to the employees it may result net loss for the
employee to that extent. This will also depend on the fact that whether
employers’ contribution was included in CTC agreed upon in the employment
contract with employee. Employer is not bounded by the statue to pass on this
2% relief to employee so this will entirely depend on employment contract
terms.
CA. Animesh Singi
+91-9098589691
animeshsingi@gmail.com
