Tax for small firms reduced to 25%

Jaitley reduced income tax for small companies to 25% having annual revenue of up to Rs 50 crore

Micro, small, and medium enterprises bore the brunt of demonetisation. MSME businesspersons being traditional support base of Rashtriya Swayamsevak Sangh, its affiliated organisations put sustained pressure on Finance Minister Arun Jaitley to give relief to the sector.

In his Budget, Jaitley reduced income tax for small companies to 25 per cent having annual revenue of up to Rs 50 crore. 

"Going by data of assessment year 2015-16, there are 694,000 companies filing returns, of which 667,000 fall in this category. Therefore, percentage-wise, 96 per cent of companies will benefit from this lower taxation," Jaitley said, adding the revenue foregone due to this measure is expected to be Rs7,200 crore per year. He said the measure was taken to help make MSME companies more competitive and encourage firms to migrate to company format. 

There was also urgent political need to convey that the government cares for the sector since both Uttar Pradesh and Punjab are going to polls in February and March, respectively. Both states have thousands of MSMEs and employ millions of people.

According to government estimates, the estimated contribution of the sector, including its service segment, to gross domestic product was 37.54 per cent in 2012-13. The total employment in the sector was 80.5 million. The sector’s share in exports for 2014-15 was 44.7 per cent.