Avalara > Blog > Goods and Services Tax > Advantage MSME - How is Indias indirect taxation system helping boost small biz

Advantage MSME - How is India's indirect taxation system helping boost small biz?

  • Sep 30, 2020 | Divita S Gupta

Micro, small and medium sized enterprises form the backbone of the Indian economy and this is evidently visible in India's efforts to ensure its citizens can smoothly establish their business. One of the major pain points that the country is seeking to iron out is the ease of doing business for MSMEs. India's MSMEs are impacted by the corporate and goods and services tax system. The perception that these indirect taxation systems are highly complicated and have tough compliance requirements discourages citizens from establishing their business or even consider expanding their current business. The implementation of GST in 2017 clubbed with India's continued efforts to ease corporate tax compliance has given this sector a much-needed boost. Some of the visible and immediate changes are as follows - 

Reduction of corporate tax rate
Last year, in a bid to incentivize investment in small and medium industries, the Centre announced a reduction in corporate tax for new companies in the manufacturing sector bringing it down to a mere 15%. The centre also reduced the corporate tax for existing companies bringing it down to 22%. 

Relief from tax audit
Tax audits are known to be tedious for MSMEs but the Centre provided much needed relief in this area by expanding the threshold for those companies that would be eligible for a tax audit from ₹1 crore to ₹5 crore (provided cash transactions do not exceed 5% of the total transactions). 

GST efforts 
The Goods and Services Tax Network has announced several changes in their taxation system to benefit MSMEs including simplification of the return filing system, change in the definition of MSMEs, turnover based classification instead of investment-based classification for tax eligibility, introduction of e-invoicing and e-way billing facility to facilitate compliance etc. 

Tax holiday expansion for start-ups
Finally, the Centre announced a tax holiday upto three consecutive years for startups with turnovers upto ₹100 crores shedding the initial tax burden on startups and allowing them to focus on growth. 

These tax changes give anyone planning to establish their own MSME a huge advantage in terms of ease of business, smooth tax filing and an opportunity to focus on nothing but growth. 

Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. She has written on topics like mutual funds, insurance, taxes, SME financing for globally recognized banking and financial organizations including ICICI, Aditya Birla Group, News Corp. With a Masters in Business Administration from Symbiosis International University, she currently owns a small business in Mumbai.