Knowledge Update May'20
India Inc's Demand from Relief Package 2.0
Major economies across the world have allocated over $12 Trillion on fiscal stimulus packages to help individuals and businesses fight the Covid-19 situation. US alone declared a relief package of about $3.5 Trillion reports Business Today. The Government of India, so far, has spared less than 1% of its GDP, focusing mostly on measures which seemed apparent from the unforeseen situation like direct cash pay-outs to the poor or distributing free food.
While we’re here: Countries like Japan, Canada, US, Australia and Brazil have declared stimulus worth over 5% of their GDP.
The Indian Government is expected to announce a second package of fiscal stimulus, including an allocation of estimated ₹1 Trillion for the MSME sector.
Zoomout: Small businesses account for nearly 1/4th of India's economy & employ more than 500 million Indians reports ET.
While we’re here: Countries across the globe have jumped to save their small businesses, like:
USA – $349 Billion + $320 Billion worth of loan guarantee program to pay for utilities, rent, mortgage and payroll.
UK – Funding grants of GBP 10,000 to 25,000. Support promised to businesses that need cash;
France – Suspension of Rent & Utility bills;
Spain – Loan guarantee of 100 billion euros;
Australia – Deferment of loan repayment by 6 months;
UAE - Three billion dirham has been allocated to SME credit guarantee scheme;
Thailand – Baht 150 Billion worth soft loans @ 2% interest rate.
Nitin Gadkari, MSME Minister, has sent an array of recommendations to the FM, who is expected to announce relief package 2.0 soon.
Ourtake: It is likely to be a subset of all the above.
Here are some demands and expectations of industry bodies from the next fiscal stimulus:
1. Automobile: Federation of Automobile Dealers Associations (FADA)’s appeal:
Paying salaries through ESIC;
Reduction in GST rate for cars and two-wheelers to help cut down the cost of vehicles. Alternatively, it suggests a 3-4% reduction in the interest rate to lower the overall cost of owning a vehicle;
Extension of Corporate Depreciation Scheme till FY2021 and providing similar benefits to individuals for FY2021 at an effective rate of 25 per cent (WDV);
An incentive-based vehicle scrappage policy for all vehicles that have been in use since before 2010.
FADA cited the 'Cash for Clunkers' programmes used in USA and EU as examples, stating that if implemented correctly, such policies instantly boost demand;
Inclusion of the auto industry in Priority Sector lending to ensure that both retail and wholesale financing can be made available easily.
2. Aviation: The civil aviation industry chamber is seeking an urgent financial rescue package and tax incentives for airlines. Key points:
Bringing aviation turbine fuel under the Goods and Services Tax (GST);
Deferment on GST payments by airlines;
An amount of at least $1 billion should be infused into the industry;
Reduction in airport charges and overflight fees;
Temporary cut in excise duty on jet fuel.
3. Gujarat’s Morbi’s clock industry is a 800 crore industry, employing up to 20K people. They’ve appealed for the following:
GST relief of up to 50% post lockdown to protect the mass employment (Over 80% of the employees working in these units are women).
Anti-dumping duty on Chinese clocks and clock parts. (Currently only 10% import duty has been imposed on clock and clock parts).
4. Startups: Over 50 Startups and venture capital firms have requested the Government to grant them a relief package. Demands include:
Meet 50% salary for the next 6 months;
Interest free loansfrom Banks;
Waiver of rentfor next 3 months;
5. Industry Body: NASSCOM has made a representation to the government:
Extension of the Sunset Clause for Special Economic Zones (SEZs) registration by 1 year;
Expenses incurred by companies for enabling employees to work from home should be considered as eligible business expenses;
Defer payment of advance income tax in the 1st quarter by MSMEs;
Introduce a furlough scheme like in the UK where companies can furlough those employees who are not on projects.
6. Mining and Metal: Confederation of Indian Industries (CII) approached the Centre seeking an incentive package for the mining and metals sector:
Extension on concession interest rate, free additional working capital credit lines from the banks considering the nil margin to meet the shortfall in cash flows due to national lockdown;
Relaxation on Aggregate Sanctioned Credit Limit (ASCL) norms for the fiscal year 2019-20 till further notice or exclusion of up to 25% of incremental borrowing from banking sector in ASCL computation;
Deferred payment of Mining Levies (Royalty, DMF & NMET);
Waiver of GST Compensation Cess of ₹400 per million tonne for power, aluminum, coking coal and import dependent sector like pig iron and steel;
Waiver of fixed charges pertaining to electricity and PNG accrued during the period of lockdown;
Reduction in coal freight rates by 25% for the next 6 months and re-introduction of concession in freight rates for Short Lead Goods Traffic;
Also seeking reduction in warfage and port charges;
Additional fiscal incentives to exports, at least for a period of 6 months.
7. Hospitality: National Restaurants Association of India (NRAI) with an annual turnover of annual turnover of approximately INR 4 Lakh Crore and employing close to 7 million Indians appeals to Central and State government and local authorities:
Restore Input Tax Credit on GST to bring down fixed operating costs;
Seek support from all the Landlords (including mall owners) across the country to waive off the rentals and CAM for 3 months and work on a moderate revenue sharing model for 6 months post that till the business regains some lost foothold;
Appeal to various State Governments to extend extension of due dates on state taxes like Excise and VAT.
Federation of Hotel & Restaurant Associations of India (FHRAI):
GST holiday for 6 months from both State and Central Govt;
An interest rate cut by almost 200 basis points;
Relief in electricitybills either as waiver or subsidy of FAC charges, and electricity duty.
8. Textile: Confederation of Indian Textile Industry (CITI) has appealed to GOI for the following:
Moratorium for repayment of principal and interest amount to the banks for 4 quarters;
Exemption of all raw materials, dyes and chemicals, intermediaries, spares, accessories, etc., from anti-dumping duty and basic customs duty;
Interest Equalization Scheme (IES) and Merchandise Exports from India Scheme (MEIS) benefits with immediate effect to prevent job losses for lakhs of people in the handloom, powerloom and spinning sectors;
Extend soft loans equivalent to government dues pending in the books of individual textile units that could be adjusted as soon as the government clears the dues.
Relief Package 1.0 by the Government of India
Employees’ provident fund (EPF)
1. Individuals can now withdraw, lower of:
3 months Basic salary + Dearness allowance; or
up to 75% of the amount standing to the credit (employer’s share+ employee’s share + interest)
2. For the month of Mar, Apr, May’20: Employer contribution of 12% + Employee contribution of 12% to be paid fully by the government, if number of employees is <100 and 90% are drawing wages <15000;
3. Due date for payment of EPF contributions (employer and employee) for the month of March’20: Extended from 15-April to 15-May. (Employers who have disbursed wages for the month of March, 2020 are eligible to avail the benefit of the above extension);
4. ESI Contribution for the months of Feb, Mar’20: Extended by 1 month.
1. The Department of Revenue, Ministry of Finance (vide Press Release Dated 08-April) has decided to issue all the pending incometax refunds where claim amount is up to INR 5 lakh immediately with a view to provide immediate relief to the business entities and individuals. Expected to benefit around 14 lakh taxpayers;
2. Chapter VIA-80C, 80G, 80D, Donation, PPF, Life and Health insurance: Related investments can be made till 30-Juneto claim Chapter VIA deduction (Original due date: 31-March);
3. Last date for filing income tax returns for the financial year 2018-19: Extended from 31-March to 30-June.
4. The interest rate on delayed income tax payment: decreased from 12% to 9%
1. Interest on delayed payment of TDS reduced from 18% to 9% p.a;
2. TDS Returns (Forms 24Q and 26Q) for March’20 quarter: Extended from 31-May to 30-June; 3. Form 24QB/QC/QD: Feb, Mar, Apr’20: Extended to 30-June;
4. Issue of form 16/16A: For March quarter: Extended from 15-June to 30-June;
5. Issue of form 16B/16C/16D: Extended to 30-June.
Indirect tax (Customs Act and GST)
1. Exemption from custom duty on import of ventilators, personal protection equipment and Covid-19 testing kits & Inputs for these goods (vide notification no. 20/2020-customs dated 09-April).
2. Issue all pending Customs & GST refunds which is likely to benefit up to 1 lakh businesses.
3. GST Due Dates extended to:
*Interest will be payable @ 9% (Not 18%) if amount is paid after 15 days from the normal due date
a) Late filing fees and penalty has been waived for all of the above;
b) For the month of Feb'20 and Mar'20, FY 2018-19's turnover needs to be considered. From thereafter, turnover of FY 19-20 needs to be considered to determine due dates;
c) GSTR 1: The due date has not been extended but the late filing fees has been waived, provided the form is filed within 30-June;
d) The new rule of claiming ITC in 3B only to the extent of 110% of eligible ITC appearing in GSTR 2A of the relevant month: Relaxed for the month of Feb, Mar, Apr, May, Jun, Jul, Aug’20. However, the same will apply cumulatively for the month of Sep’20.
Extended due dates: For Composite taxpayers
a) Quarterly filing for the quarter ended Mar’20 has been extended to 07-July;
b) Due date for filing Form GSTR 4 (annual return): 15-July;
c) Due date for opting for composition scheme: extended to 30-June.
Relief Package by Reserve Bank of India
Monetary Policy dated 27-March:
Following the global wave of interest rate reduction to pump up liquidity, RBI also slashed repo rate by 75 basis points to 4.4%;
Reverse repo rate sharply slashed by 90 basis points to 4% (further slashed by 25 basis points to 3.75% on 16-April), making it unattractive for banks to deposit funds with RBI;
The last time these rates were this low, was during the financial crisis of 2007-08;
RBI to undertake repo operation to infuse ₹ 1 lakh crore;
Cash Reserve Ratio (CRR) cut sharply by 100 bps to 3% releasing further ₹ 1.37 lakh croreinto the system;
Term Loan Moratorium:
All repayments of Term Loans being due between 01-March to 31-May, will be pushed forward by 3 months;
The scheme is optional for both the bank and the borrower;
The scheme covers repayment of all term loans/cash credit/overdraft/credit card dues;
Opting for moratorium will not lead to down grading of the borrower’s credit rating or affect the risk of classification of loan;
Economic times gives an entire list of bank-wise option in relation to the moratorium here;
Loans TO NBFCs are not covered under this scheme but loans BY NBFCs (being a ‘lending institution’) are covered;
Interest will continue to accrue on the amount outstanding;
A petition has been filed in the supreme court that interest shall not allowed to be accrued during the moratorium.