ANALYSIS OF THE PACKAGE ANNOUNCED BY FINANCE MINISTER ON 13.05.2020

ANALYSIS OF THE PACKAGE ANNOUNCED BY FINANCE MINISTER ON 13.05.2020 (PART-I)

In view of the special economic package of Rs. 20 Lac Crore to attain the objective of self reliant India as envisaged by our Prime Minister, the Finance Minister (“FM”) announced the first tranche of package on 13.05.2020. The FM has announced 16 different measures broadly dealing with 7 sectors, the details of which are as under:-

1. FOR MICRO SMALL & MEDIUM ENTERPRISES (“MSME”):-

1. The major change has been made in the definition of the MSME whereas same criteria for manufacturing as well as service sector have been proposed and additional criteria on the basis of the turnover have also been introduced. The details are as under (existing position is enumerated under Section 7 of MSME Act, 2009:-

1. Micro Enterprises:- Investment of less than 1 crore and turnover of less than 5 crore (the existing criteria is only based on investment basis with upper ceiling of 25 lacs in manufacturing enterprise and 10 lacs for service enterprise).
2. Small Enterprise:- Investment of less than 10 crore and turnover of less than 50 crore (the existing criteria is only based on investment basis with upper ceiling of 5 Crore in manufacturing enterprise and 2 crore for service enterprise).
3. Medium Enterprise:- Investment of less than 20 crore and turnover of less than 100 crore (the existing criteria is only based on investment basis with upper ceiling of 10 Crore in manufacturing enterprise and 5 crore for service enterprise).

Startup Door comment:- It is a welcome step, however, the fulfilment of both the criteria (investment and turnover) or one of the criteria for falling under the respective definition has to be seen once the actual amended text is brought in the statute book. 

1. Collateral free automatic loan for three lakh crore of four year tenure with moratorium of 12 months (available till 31/10/2020)
2. Rs.20,000 Crore subordinate loan for stressed MSME’s:- The facility is also available to MSME having turned NPA.
3. Fund of Fund with corpus of Rs.10,000 crore in order to provide equity funding for MSME with growth potential and viability:- The fund shall be operated through a Mother Fund and few Daughter Fund in such a way that fund structure shall leverage Rs.50,000 at daughter fund level.
4. For any government procurement for the purchase up to Rs.200 crore, no global tender shall be required:- It will be boost for Indian Companies as well as made in India.
5. Government of India, its agencies as well as PSU’s shall clear all the receivables of MSME within next 45 days. 

1. EMPLOYEE PROVIDENT FUND:- 

1. Liquidity relief for another 3 month (up to August, 2020) :- It is extension of scheme already announced at the start of lockdown (was valid up to May,2020) by another three month. Under the said scheme, the Government of India has promised to bear the entire EPF for any company having  less than 100 employees whereas the monthly salary of at least 90% of employee is less than Rs.15,000/-. 
2. EPF contribution for employer has been reduced to 10% from 12% for next 3 months (not applicable to PSU’s):- It will ensure increase in hand salary as the said reduction has been applicable to all the company irrespective of its size.

III. Non Banking Finance Corporations (“NBFC”), Housing Finance Companies (“HFC”) and Micro Finance Institutions (“MFI”)

1. Rs.30,000/- Crore Special Liquidity scheme for stressed NBFC/HFC/MFI whereas investment shall be made in primary as well as secondary market transactions based in investment grade debt paper of these organisations which shall be fully guaranteed by the Government of India. 

1. Rs.45,000 liquidity infusion in NBFC/HFC:- The existing partial credit guarantee scheme (announced in December,2019) has been revamped. As per the new announcement, the GOI will provide 20 % first loss sovereign guarantee to PSB’s covering the borrowings of lower rated NBFC and HFC’s also. The said sovereign guarantee in the earlier version was limited to first loss of up to 10 per cent of fair value of assets being purchased by the PSB’s under the Scheme or Rs. 10,000 crore, whichever is lower that too applicable for purchasing high-rated pooled assets from financially sound NBFC’s.

1. Power Distribution Companies (“DISCOMs”):-Rs.90000 crore emergency liquidity injection of to all the DISCOM’s through PFC and REC based on all the receivables available to them. The said loan shall be given against state government guarantee for the exclusive purpose of discharging liabilities of the DISCOM’s towards generation Companies. 
2. CONTRACTORS:- 

1. Up to Six month extension has been granted to the contractors of all the central agencies without demurrage for fulfilment of their contractual obligation. This clarification has saved both the parties from unnecessary litigation on the issue of force majeure which would have significantly increased the burden of already troubled judicial system in view of backlogs (reference to the case of Halliburton Offshore Services Inc. v. Vedanta Limited decision may be made whereas Delhi HC prima facie hold the ongoing lockdown in the nature of force majeure).
2. The GOI has shall announced that the respective government agencies shall release partial bank guarantee in proportion to the contractual obligation already fulfilled by a Contractor. It is a significant step to ease the cash flows issue. 

1. REAL ESTATE:-

1. The Urban Development Ministry shall issue advisory to respective state government to direct the regulatory authorities (“RERA”) to recognise force majeure for 6 months (w.e.f. 25.03.2020) in view COVID-19 with regard to all the timelines inscribed in RERA Act, 2016. Accordingly the respective RERA registration and timeline for completion of project falling after 25.03.2020 may be extended by 6 months automatically without any application moved by the Promoters for the revised deadlines and the revised certificates may be issued. 

VII. DIRECT TAXATION

1. With effect from 15.05.2020 till 31.03.2021, Tax Deduction at Source (“TDS”) and Tax Collection at Source (“TCS”) for non-salaried payments shall be reduced by 25% of the existing rates.
2. All pending refund of charitable trust, non-corporate business and professions including partnership, proprietorship, LLP and Cooperatives shall be done forthwith.
3. Due date of filing of all the income tax return for fy2019-20 has been extended to 30.11.2020. Accordingly, tax audit has been deadline has been extended to  to 31.10.2020 from 30.09.2020.
4. The date of expiry of limitation of Income Tax Assessment getting barred on 30.09.2020 and 31.03.2021 has been extended to 31.12.2020 and 30.09.2021 respectively.  
5. Deadline for settling tax disputes under “Vivad se Vishwas” scheme is extended to 31.12.2020 without additional interest and penalty:- Under the original scheme, any full and final settlement may be made by an Individual till 31.03.2020 by simply paying the disputed tax demand without any interest and penalty. An additional payment of 10% of penalty on the disputed tax demand was to paid by an Individual undergoing settlement after 31.03.2020, the same has been done away with now.