First tranche of stimulus package announced by FM under Aatmanirbhar Bharat - Part 2

So, in the previous article, I talked about the major 6 steps announced by the Ministry of Finance for the revival of MSMEs.

In this article, I will talk about the rest of the announcements that were done by Finance Minister - Shri Nirmala Sitharaman in the first tranche of announcements on 13th May, 2020.

7. "Employees Provident Fund (EPF) Support for business and organised workers." The scheme introduced as part of PMGKP under which Government of India contributes 12% of salary each on behalf of both employer and employee to EPF will be extended by another 3 months for salary months of June, July and August 2020. Total benefits accrued is about Rs 2500 crores to 72.22 lakh employees.

8. "EPF Contribution to be reduced for Employers and Employees for 3 months." Statutory PF contribution of both employer and employee reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months. This will provide liquidity of about Rs.2250 Crore per month. However this doesn't apply to employees working under CPSEs (Central Public Sector Enterprises) & State Public Sector Undertakings (PSUs). "This scheme will be applicable for workers who are not eligible for 24% EPF support under PM Garib Kalyan package and its extension", the FM said. This will provide relief to about 6.5 lakh establishments covered under EPFO and about 4.3 crore such employees.

In the wake of coronavirus outbreak, the FM had announced in March that the government will take care of EPF contribution of both the employer and the employee for the next three months. This scheme was applicable for organisation with up to 100 employees, where 90 per cent of employees draw less than Rs 15,000 salary.

The government is considering to lower the rate of contribution towards EPF. This can have an impact on your take-home pay and on the corpus accumulated at the time of retirement. Further, the cost-to-company (CTC) will change.

9. "Rs 30,000 crores Special Liquidity Scheme for NBFC (Non-banking financial companies / HFC (Housing Finance comapnies) / MFIs (Mirco finance institutions)." Government will launch Rs 30,000 crore Special Liquidity Scheme, liquidity being provided by RBI. Investment will be made in primary and secondary market transactions in investment grade debt paper of NBFCs, HFCs and MFIs. This will be 100 percent guaranteed by the Government of India.

This liquidity scheme will be in addition to the ?50,000 crore funding available under the RBI’s targeted long term repo operations (TLTRO 2.0). Under the TLTRO 2.0 window, banks can access three-year funding from the RBI to invest in investment-grade papers of NBFCs, with at least 50% in small- and mid-sized NBFCs and MFIs.

Within this, 10% will be invested in securities issued by MFIs, 15% in securities issued by NBFCs with assets of ?500 crore and below, and another 25% in securities issued by NBFCs with assets of ?500-5,000 crore.

Incidentally, investment-grade debt papers include even securities with low credit rating, but have not been considered junk. This will now be extended to cover papers with ratings of AA and below, including unrated papers, which will help MFIs access fresh liquidity support.

10. "Rs 45,000 crores Partial credit guarantee Scheme 2.0 for Liabilities of NBFCs/MFIs." Existing Partial Credit Guarantee scheme is being revamped and now will be extended to cover the borrowings of lower rated NBFCs, HFCs and other Micro Finance Institutions (MFIs). Government of India will provide 20 percent first loss sovereign guarantee to Public Sector Banks.

11. "Rs 90,000 crore Liquidity Injection for DISCOMs (Power distribution companies)." Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will infuse liquidity in the DISCOMS to the extent of Rs 90000 crores in two equal instalments. This amount will be used by DISCOMS to pay their dues to Transmission and Generation companies. Further, CPSE GENCOs will give a rebate to DISCOMS on the condition that the same is passed on to the final consumers as a relief towards their fixed charges.

According to me, this is a really good measure taken at right time by the government taking into consideration how the economic disruption has worsened the already precarious finances of discoms. Electricity demand load shifted to homes during the lockdown, resulting in lower realizations. With peak electricity demand coming down, commercial and industrial power demand has taken a hit after many factories shut down.

An article I read on Mint said: “The government has also decided to waive off the fixed charges and interstate transmission charges (by Power Grid Corp. of India) against the power not drawn from NTPC, DVC and other CPSE from the period from 24 March 2020 to 17-05-2020," power minister Raj Kumar Singh said in a post on Twitter.The waiving of ?0.22 per unit inter-state electricity transmission charges by state-owned Power Grid Corp. of India Ltd may result in a savings of around ?1,400 crore for discoms.

According to Mint, State-owned PFC and REC have $80 billion by assets and are the largest lenders to the sector. The idea is to clear the payment backlog with concessional loans guaranteed by the respective state governments.

12. "Relief to Contractors." All central agencies like Railways, Ministry of Road Transport and Highways and CPWD (Central Public Works Department) will give extension of up to 6 months for completion of contractual obligations, including in respect of EPC and concession agreements. It includes extension of concession period in PPP contracts. covers obligations like completion of work, intermediate milestones, etc. This is definitely the need of the hour.

13. "Relief to Real Estate Projects." State Governments are being advised to invoke the Force Majeure clause under RERA (Real Estate Regulations Act). The registration and completion date for all registered projects will be extended up to 6 months and may be further extended by another 3 months based on the State’s situation. Various statutory compliances under RERA will also be extended concurrently. Ministry of Housing & Urban Affairs will look after this. The minister said, "These measures will de-stress real estate developers and ensure completion of projects so that homebuyers are able to get delivery of their booked houses with new timelines."

14. "Tax Relief to Business." The pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs and cooperatives shall be issued immediately.

15. "Tax related measures":

• Reduction in Rates of ‘Tax Deduction at Source’ and ‘Tax Collected at Source” - The TDS rates for all non-salaried payment to residents, and tax collected at source rate will be reduced by 25 percent of the specified rates for the remaining period of FY 20-21.This will provided liquidity to the tune of Rs 50,000 Crore.
• The due date of all Income Tax Returns for Assessment Year 2020-21 will be extended to 30 November, 2020. Similarly, tax audit due date will be extended to 31 October 2020.
• The date for making payment without additional amount under the “Vivad Se Vishwas” scheme will be extended to 31 December, 2020. Disputes pending at various platforms including tribunals, courts and arbitration panels are covered by the scheme. As per official estimates, there are 483,000 direct tax-related disputes pending before various platforms totaling ?9.32 trillion. If the scheme is a success, it will boost government’s revenue and ease the burden on courts and tribunals. It allows beneficiaries to pay the disputed tax arrears without interest and penalty.

According to Mr. Sudhir Kapadia, National Tax leader, EY India, "The move to release income tax refunds of all non-corporate tax payers is welcome, it should be done for all corporates whose refunds are due, thus injecting much-needed liquidity in business."

Written by Nihit Parikh

If you have missed the first article about 6 key measures for MSMEs under the Aatmanirbhar Bharat Scheme, you can find it here: