AS per estimates, Small and Medium enterprises (SMEs) contribute about 8% of our countrys GDP and provide employment to more than 6-crore people. Therefore, it is important to provide necessary tax and policy support to the individuals/SMEs to ensure overall inclusive growth. This also has been one of the underlying themes of the current years Budget. In this context, the following proposals are worth noting.
Relaxation in tax audit limits
Under the existing provisions of the Income-Tax Act, 1961 (the Act), every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in business exceed Rs 40 lakh in a particular financial year. Similarly, a person carrying on a profession is required to get his accounts audited if the gross receipts in profession exceed Rs 10 lakh.
There has been a long pending demand to increase theses limits as they have lost their utility and not kept pace with the changing business reality. In the current years Budget, it is proposed to increase the aforesaid threshold limit to Rs 60 lakh for business and to Rs 15 lakh for profession. This would help reduce compliance burden of small businesses and professionals.
Currently, an individual, a Hindu undivided family or a partnership firm, engaged in any business other than the business of plying, hiring or leasing goods carriages and whose total turnover or gross receipts in a financial year does not exceed Rs 40 lakh, could avail of the concessional treatment under the presumptive basis of income taxation. In such case, a sum equal to eight percentage of the total turnover or gross receipts of such business in a financial year is deemed to be the profits and gains of such business chargeable to tax. It is now proposed to raise this threshold limit to Rs 60 lakh.
The key advantages are that the tax payer is not required to maintain detailed books of accounts. The records prepared by it are used as the basis for determining the total turnover/gross receipts. Further, the tax payer is not required to pay advance tax instalments, which otherwise are required to be paid on a periodic basis as prescribed under the Act. This helps in better management of their funds during the year.
Excise duty benefits
It is proposed that Small Scale Industrial (SSI) units can avail full Cenvat credit on capital goods in one instalment in the year of receipt of such goods. Further, they can pay excise duty on quarterly basis instead of monthly basis.
Conversion into LLP
It is proposed that, in case of a company whose total sales, turnover or gross receipts in business do not exceed Rs 60 lakh in any of the preceding three financial years, and it converts itself into a Limited Liability Partnership (LLP), then such conversion would not be regarded as a transfer and hence, not subject to capital gains tax. It is pertinent to note that certain conditions need to be satisfied for availing of this benefit, else taxability would get triggered.
It is proposed to allow carry forward and set off of business loss and unabsorbed depreciation to the successor LLP. Other key advantages post conversion into LLP includes exemption from levy of minimum alternate tax (MAT) and dividend distribution tax. Thus, small companies may consider these beneficial provisions.
Move in the right direction
Of course, small businesses require much more support from different stake holders like ease of availability of finance, access to cost-effective technology, effective lower tax cost, etc. Nevertheless, the proposed changes are moves in the right direction from a tax policy perspective and would help reduce compliance and administrative costs for small businesses.