INR 20 Lakh Crore Package: Emergency Credit For MSMEs, PF Rate Reduced and Liquidity Boost to NBFCs
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Finance Minister Nirmala Sitharaman today announced first tranche of measures under special economic package of INR 20 lakh crore—10 per cent of India’s GDP—meant to fight the economic fallout of Covid-19 and ensuing countrywide lockdown.
A total 15 measures were announced—six for micro, small and medium enterprises (MSMEs), two for Employees’ Provident Fund (EPF), two for non-banking finance companies (NBFCs), housing finance companies (HFCs) and micro-finance institutions (MFIs), one for discoms (electricity distribution companies), one for contractors, one for real estate and three measures for direct tax.
Emergency Credit Line and New Definition for MSMEs
INR 3 lakh crore collateral-free automatic Loans: Collateral free loans worth INR 3 lakh crore will be disbursed to MSMEs under the economic package. The loans will come with a 12 month moratorium on principal repayment and tenure of 4 years.
Businesses with up to INR 25 crore outstanding and INR 100 crore turnover will be eligible for the scheme, which is available till 31 October 2020. Banks and NBFCs will disburse up to 20 per cent of entire outstanding credit as on 29 February 2020 and will be given 100 per cent credit guarantee cover on principal and interest.
INR 20,000 crore subordinate debt for stressed MSMEs: Functioning MSMEs which have been classified NPA or are stressed will be eligible for subordinate debt.
Fund of funds of INR 50,000 crore: MSMEs that have growth potential and viability will be eligible to under FoF scheme. This funding mode will help to expand MSME size as well as capacity, FM said.
New definition of MSMEs: To devise new definition, investment limit will be revised upwards, additional criteria of turnover will be introduced and distinction between manufacturing and service sector will be removed.
“The sweeping reform of definitions for Indian MSMEs will play a significant role in allowing more companies to claim benefits under the special provisions for the MSME sector. Indian exports, in particular, are heavily reliant on MSME units, and the large-scale stimulus announced today by the Finance Minister will provide the fuel needed to stabilize Indian trade and resume growth in the coming months,” said Pushkar Mukewar, Co-CEO, Drip Capital.
Global tenders to be disallowed up to INR 200 crore: Global tenders will be banned for government procurement up to INR 200 crore. This move will enable MSMEs to compete and supply in government tenders, FM said.
“The government's e-procurement sites have typically been flooded by large foreign players who bring unfair advantage in terms of pricing and size. MSMEs working as ancillary units (e.g. autos, infrastructure) lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and Mid-Market businesses on such platforms,” said Meghna Suryakumar, CEO and Founder, Crediwatch.
GoI and CPSEs to release dues in 45 days: All receivables of MSMEs by the government and central public sector enterprises (CPSEs) will be cleared in the next 45 days.
EPF Contribution Reduced
EPF support for business & workers for 3 more months: Under Pradhan Mantri Garib Kalyan Package (PMGKP), payment of 12 per cent of employer and 12 per cent of employee contributions was made into EPF accounts of eligible establishments by the government for the the months of March, April and May 2020. This support will be extended by another three months to salary months of June, July and August 2020.
Statutory PF contributions reduced: For workers who are not eligible for 24 per cent EPF support under PMGKP and its extension, statutory PF contributions of both employer and employee will be reduced to 10 per cent each from existing 12 per cent for all non-government establishments covered by EPFO for next 3 months.
Archit Gupta, CEO and Founder, Cleartax said, “With the reduction in EPF rates, some taxpayers may have to relook at deductions they want to claim (Section 80C) especially with the new regime kicking in. Also, surreptitiously the contributions to EPF will fall, interest rates on EPF is already falling; besides millions of subscribers have withdrawn EPF balances. All of these measures reduce the interest burden on the government. And while there may be more money at hand, taxpayers need to be acutely aware of their investing and figure out how to work towards building a retirement corpus.”
Liquidity Boost to NBFCs, HFCs and MFIs
INR 30,000 crore special liquidity scheme: Under this scheme, investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs. The securities will be fully guaranteed by the government.
Partial credit guarantee scheme for NBFCs: To provide liquidity to low rated NBFCs, existing PCGS scheme will be extended to cover borrowings such as primary issuance of Bonds/ CPs (liability side of balance sheets) of such entities. The first 20 per cent of loss will be borne by the government. Papers rated AA and below, including unrated paper, will be eligible for investment.
Liquidity Injection for Discoms
Liquidity of INR 90,000 crore will be infused in power distribution companies (DISCOMs) against receivables. Loans will be given against State guarantees for exclusive purpose of discharging liabilities of Discoms to Gencos.
“Revenues of Power Distribution Companies (Discoms) have plummeted and entities are witnessing unprecedented cash flow problem accentuated by demand reduction,” the official statement said.
Also, Central Public Sector Generation Companies shall give rebate to Discoms, which in turn should be passed on to the final consumers (industries).
Extension Relief for Contractors
All central agencies like Railways, Ministry of Road Transport & Highways, Central Public Works Dept etc, will give an extension of up to six months to contractors, without any cost to the latter. This will cover all construction/ works and goods and services contracts and obligations like completion of work, intermediate milestones etc.
“A standstill period of 6 months with no associated penalties for not meeting project milestones, automatic extension of contract period is another example of simplifying the investment climate with contractors or concessionaires not having to seek extension on a case by case basis,” said Arindam Guha, Partner, Leader- Government and Public Services, Deloitte India.
Real Estate Projects Get Extension on Completion Deadlines
Regulatory authorities of states/UTs will be advised to treat COVID-19 as act of God under RERA. In view of this, extension of registration and completion date suo-moto by six months for all registered projects expiring on or after 25th March, 2020 without individual applications will be given. Regulatory authorities will have an option to extend this for another period of up to 3 months, if needed.
Additionally, authorities have to issue fresh ‘Project Registration Certificates’ automatically with revised timelines and extend timelines for various statuary compliances under RERA concurrently. “This is a big move that will de-stress developers significantly, since construction activity had been halted all across the country. Homebuyers’ wait for their homes will get extended by this move, but this was in any case inevitable,” said Anuj Puri, Chairman, ANAROCK Property Consultants.
Direct Tax Reliefs
TDS rate reduced: Rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts shall be reduced by 2,500 basis points. Payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc will be eligible for the reduced rate and the new rates will apply from 14 May until 31 March 2021.
Due date extended: Due date of all income tax returns for FY 2020 has been extended to 30 Nov 2020. Further, Sitharaman said all pending refunds to a variety of entities charitable trusts, non corporate businesses, partnerships, LLPs, co-operatives will be released immediately.
Vivas se Vishwas Payment Date Extended: Period of Vivad se Vishwas Scheme for making payment without additional amount will be extended to 31st December, 2020.