Coronavirus Tax Relief for Small Businesses

The chaos affected every corner of the world when the coronavirus outbreak first started spreading from China to different other countries. With China as its origin, major countries such as Italy, Spain, and the United States recorded thousands of fatal cases every day, prompting a quarantined lifestyle as the only possible safety measure. A total lockdown was proposed in most countries in the wake of the prevention of the COVID-19 virus spread, which didn’t go quite well for the economy. The situation was even worse for nascent countries such as India where the markets went downhill in the first month of the lockdown.

Quintessential Consideration by the Authorities

Back at the beginning of the outbreak, it was nearly impossible for small businesses to tackle the situation and cope with various economic problems simultaneously. It was evident that the year was about to become a long span of survival struggle for all kinds of small and medium scale businesses. Fortunately, the Indian government evaluated the chaos of the economic sector and planned to provide tax relief for small businesses. But it didn’t happen in a day, and it took the authorities several days before bringing an efficient roadmap of tax relief for small business owners.

It all started in April this year when along with securing a significant amount of funds for food security, the government also prepared a budget of almost Rs 1 lakh crore for small business owners. This budget was proposed by the government bodies to cover the maximum tax relaxation and create other helpful schemes for MSMEs, so the Indian economy doesn’t bite the dust in front of the pandemic.

As mentioned in numerous surveys of the year, small businesses in India disclose the 25% contribution to the overall Indian economy, and therefore saving them was necessary. Besides this, most of these businesses offer employment to more than 200 million people in the country, and any kind of loss to these businesses will result in mass lay off. Moreover, there have been many speculations in the media about these schemes and relief programs since the beginning of the lockdown, but the government is taking its fair share of time implementing these relaxation rules.

While these relief schemes were on the cards for the small businesses, authorities were also paying attention to the idea of offering a boost in the bank loan limits. As per this rule, small business owners and vendors were to receive a threshold time limit for the loans and taxes they were supposed to submit to the banks and the government, respectively. The Finance Ministry was right on edge with their economic roadmap development for making the upcoming time for small businesses far less tedious.

It was then decided that the April-June session will provide the tax refund of approximately Rs 18,000 crores because the markets were going completely cash-starved and forthcoming months were going to be the hardest for almost all kinds of small and medium scale businesses. Amid lots of ups & downs, it took a while, but authorities successfully managed to release numerous schemes and relaxation schemes for small businesses at the right time.

Major Income Tax Relaxations

When the entire country was dealing with a plethora of lockdown outcomes such as sudden layoffs, unemployment, and other social and financial issues; the future of the Indian economy seemed to reflect no hopes and prospects at least for a year. This was when our finance minister Nirmala Sitharaman announced significant changes in the taxation department and relief schemes for small-scale businesses. These changes were to be released as the ‘COVID-19 relief package’ for small businesses where owners could extend the due date of their loan and tax payments.

Before this relief package for small businesses, prime minister Narendra Modi also poised the idea of economic revival by helping the MSMEs sector. It was majorly focused on labour, law, land, and liquidity. As per these relief schemes and packages, the Indian economy will be able to witness optimal survival and markets will flourish the regular cash-flow, making businesses empowered in a short period. Some of these tax-relaxation schemes for noncorporate taxpayers are mentioned below:

1. Reduction in TDS/TCS Rate

• The overall tax rate will be reduced to 25% for all the non-salary payments made by the vendor. As per this scheme, it applies to all the payments made to the residents and specified in the document by the business owner.
• A similar kind of reduction applies to the specified receipts. According to this, the tax collection rate will also be deduced to 25% if there are specified receipts at the source.
• Different types of payment transactions fall under the category of reduced TDS rates encompassing certain fees, rent, brokerage, commission, contract, or interest. This reduction in tax rate is applicable till the end of this ongoing financial year.
• As per the evaluated estimation by economic professionals in the finance ministry, this decrease rate in TDS and TCS will effectively generate a liquidity amount of approximately Rs 50,000 crores bringing flexibility in the overall economy of the nation.

These drastic measures to save the drowning economy of India seem to provide a helping hand for small businesses. As per a taxation professional, revenue departments have been advised to analyse the profitability scale of an enterprise and assess the taxation regulations accordingly. Any business with constantly low profitability will result in low tax rates, and vendors will be able to receive the benefit of these relaxation schemes for as long as possible. This may not be the best way to deal with the problem, but it will eliminate the stress of meeting a deadline when it comes to paying the taxes within a given span.

2. A Revision in the TDS Rates

Aside from reduced TDS and TCS rates, the government bodies have also considered a few revisions in the TDS rates. These changes will be applicable in the tax regulations from May 15, 2020, to March 31, 2021. The changes are as follows:

• The existing TDS rate on payments of interest on securities, dividends by mutual funds, brokerage, commission, rent on immovable property, and interest under section 194A is 10%. But now, it has been reduced to 7.5%, which will prove to be a major relief for small business owners.
• When it comes to the payments for acquiring any immovable property or participating in e-commerce trading, the existing rate of 1% has been reduced to 0.75% rate.
• An undivided family or a corporate body can make payments to the contractors or sub-contractors at a reduced rate of 0.75% and 1.5 % respectively.

3. Extension of Due dates

Apart from introducing noteworthy modifications in TDS rates and TCS rates, the administration will also take care of the due date extension for removing the burden from the small-scale businesses. The date of assessment has been moved from September 30, 2020, to December 31, 2020. On the other hand, some of these dates have been moved to March 31, 2021, and September 30, 2021.

Government Relief Schemes for Small Businesses (Under Atma Nirbhar Bharat Abhiyan)

• The scheme proposes a collateral-free automation loan that will provide an advantage to approximately 40 lakh MSMEs. There is a 12-month principal repayment span in the scheme and zero to minimal interest rates.
• Funds for MSMEs will be introduced so small business owners can work on the minor expansion of the business for boosting the revenue rate efficiently.
• Limitation of government tenders up to local bidders has also been advised in the plan, so small business owners can deal with the unfair competition of the market.

In the end, the government has also decided to issue the pending income tax refunds to NGOs, charitable trusts, limited liability partnerships, non-corporate businesses, and some cooperative societies. All-in-all, small business owners can expect a better time coming ahead of them with each passing day.

Also read:

1) How to earn money during a lockdown period?
2) Best COVID-19 Lessons For Small Business Sectors of India
3) Best investment ideas during the COVID-19 pandemic
4) How To Manage Investment During Covid-19 Pandemic?