News and developments
Covid-19 Series: Phase I of Relief Measures
As promised in the 12 May address of the Prime Minister, the Government of India (“GOI”) has announced the first phase of economic relief package under the ‘Atma Nirbhar Bharat Abhiyan’. A quick snap-shot of the main reliefs is as follows:
MSME Sector
The relief package seeks to address the liquidity issues for the MSME sector, by focusing on:
- Increasing the existing thresholds for classification as an MSME to include more enterprises, thereby remove disincentives for MSMEs to become bigger for the fear of losing benefits;
- Providing equity and subordinated debt support to stressed MSMEs and promoters of MSMEs;
- Unlocking the available liquidity with banks and financial institutions by encouraging them to lend to MSMEs by providing 100% credit guarantee.
- Micro Enterprise- investment of less than Rs 1 crore and turnover of less than Rs 5 crore,
- Small Enterprise – Investment of less than Rs 10 crore and turnover of less than Rs 50 crore
- Medium Enterprise- Investment of less than Rs 20 crore and turnover of less than Rs 100 crore
- Eligibility: The borrowers with up to Rs. 25 crores outstanding and 100 crore turnovers.
- Term : 4 years with a moratorium of 12 months on principal amount repayment.
- Period for availing the scheme: It can be availed until 31.10.2020.
- Key Features: The Government shall provide 100% credit guarantee cover to Banks and NBFC on the principle and interest. No guarantee fees shall be charged, and no fresh collateral is required.
- MSME dues from the Government and Central Public Sector Enterprises shall be cleared in 45 days. It is pertinent to note that under the Micro, Small and Medium Enterprises Development Act, 2006, MSMEs are already entitled to be paid within 45 days from the date of acceptance or deemed acceptance of the goods or services. For any delay in payments, the MSMEs are entitled to compound interest at monthly rests at the rate of three times the bank rate notified by the RBI. We anticipate that the Government/ CPSEs would not extend this benefit to those cases where disputes are pending.
- Fintech is proposed to be used to enhance transaction based lending.
- E-market linkages are proposed to be promoted to replace the existing trade fair and exhibitions.
- GOI had earlier announced to bear the burden of employer’s contribution to employee provident fund, for employers with upto 100 employees, with 90% of the employees drawing salaries of less than Rs. 15,000 for a period of March- May 2020. This has now been extended by another three months, for salaries of June- August, 2020.
- Mandatory statutory contribution to employee provident fund by the employers and employees has been reduced from 12% to 10% for private enterprises.
- Six-month extension for all construction/ works, goods and services contracts with all the Central agencies (like Railways, Ministry of Road Transport & Highways, Central Public Works Department etc.). Extension to cover obligations like completion of milestone/work and extension of concession period in Public-Private Partnership contracts.
- Extension of time shall be without cost. The language of this relief (as available) is unclear and may lead to some confusion and potential dispute. The circular/ notification would have to be awaited to see if this means that no penalty would be imposed on the contractor or does it mean that contractors are disallowed from claiming cost overrun under the contracts for the period of the force majeure.
- To ease cash flow issues, government agencies will partially release the bank guarantees to the extent the contracts are partially completed.
- Power discoms to be extended credit by Power Finance Corporation/ Rural Electrification Corporation against receivables of the discoms, and guarantees of state governments. This credit is to be used exclusively for discharge of liabilities of discoms to generation companies.
- Central Public sector generation companies shall offer rebates to state discoms which shall be passed on the end consumers by the discoms.
- A special liquidity scheme of Rs. 30,000 crores, under which investment will be made in investment grade debt paper of NBFCs, HFCs and MFIs, which will be fully guaranteed by the Government of India. This will provide them with much needed liquidity for onward lending.
- NBFCs/ HFCs/ MFIs with low credit rating to be allowed to access capital through issuance of bonds and commercial papers under the existing Partial Credit Guarantee Scheme 2.0. First loss of 20% shall be guaranteed by the GOI under the scheme. AA grade and below including unrated papers are eligible for support under this scheme.
- The rates of tax deduction at source (“TDS”) and tax collection at source (“TCS”) across categories, except on salary income, shall be reduced by 25% over the existing rate, until March 31, 2021.
- All pending tax refunds of non-corporate businesses and professions shall be released immediately.
- The due date for filing of income tax return has been extended to November 30, 2020, and for tax audit to October 31, 2020.
- Deadline for assessments getting barred which are expiring on September 30, 2020 and March 31, 2021, respectively, are extended to December 31, 2020, and September 30, 2021 respectively.
- Deadline for making payments under Vivad se Vishwas scheme to be extended to December 31, 2020.