BENEFITS TO STARTUPS / MSMES AMIDST COVID-19

Contents

Introduction

What are MSMEs?

What are Startups?

Benefits on MSME / Startups

Registration

Registration Process

Measures Taken by Various

Departments During COVID-19 Situation

Proposals Announced During

AtmaNirbhar Bharat Abhiyan Presentation

Crisis Management During COVID-19 –

Turning Challenges into Opportunities

Any Assistance?

…….. 3

…….. 4

…….. 5

…….. 6

..….. 10

.….. 11

.….. 13

.….. 15

.….. 17

© 2020 // 2

“Atmanirbhar Bharat Abhiyan” or “Aatmanirbhar Bharat Scheme”

In his third address to the nation on 12 May 2020, amid the pandemic, Prime Minister Narendra Modi announced an INR 20-

lakh crore economic relief package - “Atmanirbhar Bharat Abhiyan” or “Aatmanirbhar Bharat Scheme”.

The relief package was unveiled in 5 tranches from 13 May 2020 by Finance Minister Mrs. Nirmala Sitharaman.

Several measures have been announced by the Finance Minister that would help the Micro Small Medium Enterprises (MSMEs)

sector and Startups to grapple with the devastating impact of this global pandemic.

Role of MSMEs in Indian Economy :

MSMEs are backbone of the Indian economy and has helped economy grow.

MSME Sector contributes significantly to the Indian Economy in terms of Gross Domestic Product, Exports and Employment

generation.

MSME Sector contribute 29.7% to National GDP and 49.66% of Indian Exports comprises of MSMEs.

Even Startups would be eligible to avail benefits of various incentives and schemes already existing in place and relief measures

recently announced for the MSME Sector under the Aatmanirbhar Bharat Scheme if they are eligible to register as MSMEs.

MSMEs

Startups

Introduction

// 3© 2020

VALUE PROPOSITION

Introduction toMGB

What are MSMEs? Micro, Small and Medium Enterprises Development Act, 2006

(“MSME Act”) notified on 18 July 2006 and came into force from 2

October 2006.

Classes of MSMEs

Composite Criteria : Investment and Annual Turnover (to come into effect from 01.07.2020)

Classification Micro Small Medium

Manufacturing

& Services

Investment < INR 1 crore

and

Turnover < INR 5 crore

Investment < INR 10 crore

and

Turnover < INR 50 crore

Investment< INR 50 crore

and

Turnover < INR 250 crore

• Any enterprise except for a trading entity can become a MSME.

• Ministry of Micro, Small and Medium Enterprises vide notification dated 01 June 2020 notified the following criteria for

classification of Micro, Small and Medium enterprises :

Manufacturing Enterprises

The Manufacturing Enterprises are

defined in terms of investment in

Plant & Machinery

Service Enterprises

The enterprises engaged in providing

or rendering of services and are

defined in terms of investment in

equipment

// 4

What are MSMEs?

© 2020

VALUE PROPOSITION

Introduction toMGB

What are Startups? • Startups are basically Companies having

a product that is unique and that are in

early stages of development.

• Under the Startup India Action Plan,

Startups that meet the criteria under

G.S.R. notification 127 (E) are eligible to

apply for recognition.

Eligibility Criteria for Startup Recognition :

• The Startup should be incorporated as a private

limited company or registered as a partnership

firm or a limited liability partnership.

• Turnover should be less than INR 100 Crores in

any of the previous financial years.

• An entity shall be considered as a Startup up to

10 years from the date of its incorporation.

• The Startup should be working towards

innovation/ improvement of existing products,

services and processes and should have the

potential to generate employment / create

wealth.

• An entity formed by splitting up or reconstruction

of an existing business shall not be considered

a "Startup“.

// 5

What are Startups?

© 2020

Public Procurement

Policy for Micro &

Small Enterprises

(MSEs) Order, 2012

Concession on

Patent & Trademark

registrations

Bar code

registration subsidy

IT / ITES units

registered as MSMEs

Collateral free loans

Focused approach

by BanksProtection against

delay in payment

NSIC ICRA

Performance & Credit

Rating Scheme

// 6

Benefits on MSME/Startup Registration

Relief under The

Insolvency and

Bankruptcy Code, 2016

© 2020

Concession on Patent and

Trademark registrations

A 50% fee concession is provided for

MSMEs vis-à-vis large entities on Patent

and Trademark filing fees.

Startups are provided a rebate of 80% on

patent fees as compared to the fee paid by

legal entity.

Protection against delay in payment

Buyers to pay Invoice on or before 45 days or

pay compounded interest to MSMEs.

Specialised portal created for facilitating

MSMEs to report cases of the delayed

payment of bills.

Collateral Free Loans

Credit Guarantee Fund Scheme (“CGF

Scheme”) makes collateral-free credit

available to the MSEs.

Both the existing and the new enterprises are

eligible to be covered under the said scheme.

The Trust set up would make good the loss

incurred by the lender up to 85 per cent of the

outstanding amount in case of default.

MGB Profile

// 7

Benefits on MSME/Startup Registration

Bar code registration subsidy

The scheme makes it highly affordable for

MSE units to adopt GS1 global standards

in barcoding.

The Ministry of MSME reimburses 75% of

the one-time registration fees and 75% of

the annual renewal fees incurred for the

first three years.

© 2020

NSIC ICRA Performance & Credit

Rating Scheme

This scheme seeks to establish

independent, trusted third party opinion

on capabilities and credit - worthiness of

MSEs, and makes credit available at

attractive interest rates and ensure better

productivity.

Under this scheme (as per the turnover of

the MSEs) a percent of Rating Agency

charges are reimbursed by Ministry of

MSME.

// 8

Benefits on MSME/Startup Registration

Many banks / financial institutions charge

lower rates of interest to the Enterprises

which are registered as MSMEs.

Focused approach by Banks

towards MSME

Public Procurement Policy for

Micro & Small Enterprises (MSEs)

Order, 2012

Minimum 25 per cent of products produced

and services rendered by MSEs to be part

of procurement plan of Central Ministry /

Departments / PSUs.

3 per cent from within the target shall be

earmarked for procurement from MSEs

owned by women

4 per cent for procurement from MSEs

owned by SC / ST entrepreneurs.

Issue of tender sets are free of cost and

payment of Earnest Money is exempted.

© 2020

MGB Profile

Various other schemes announced by

Ministry of MSME to:

Facilitate / promote adequate flow of credit

from financial institutions/banks.

Support for technology up-gradation &

modernization.

Modern testing facilities and quality

certification.

Entrepreneurship development and skill

upgradation through appropriate training

facilities.

Support for product development, design

intervention, and packaging.

Assistance for better access to domestic

and export markets etc.

// 9

Benefits on MSME/Startup Registration

Relief under The Insolvency and

Bankruptcy Code, 2016 (“Code”)

Promoters of MSMEs exempted from

ineligibility criteria to bid, as long as they

are not wilful defaulters.

The rationale is that a business of an

MSME attracts interest primarily from its

promoters.

IT / ITES units registered as MSMEs

Various incentives are given by State

governments to the IT / ITES units which are

registered as MSMEs.

Registration / Stamp duty concessions.

Incentive on Power Tariff and Electricity Duty,

Capital Subsidy, GST incentive etc.

© 2020

MSMEs

• Existing or new Enterprises can file Udyog Aadhaar Memorandum (“UAM”) online athttp://udyogaadhaar.gov.in .

• Where online filing is not possible, offline application may be submitted to the concernedDistrict Industry Center.

• Enterprises which have filed Entrepreneurship Memorandum-I or EntrepreneurshipMemorandum-II or both, or the holders of Small Scale Industry registration may also file theUAM.

Startups

• Enterprises less than 10 year old can make Startup application online athttps://www.startupindia.gov.in/

• An entity formed by splitting up or reconstruction of an existing business shall not beconsidered a "Startup“.

• An entity incorporated as a Private Limited Company, Registered Partnership Firm or aLimited Liability Partnership can only register themselves under the startup India scheme.

// 10

Registration Process

© 2020

GOODS & SERVICES TAX (GST)

MGB Profile

Audit under provisions of GST Ministry of Corporate Affairs

(“MCA”)

“Companies Fresh Start Scheme" and "LLP

Settlement Scheme, 2020” announced to allow

defaulting Companies / LLPs to make a fresh start.

General Meetings through video conferencing

allowed and Time gap for conducting board

meetings relaxed to 180 days from present 120

days – for the first two quarters of FY 2020-2021

CARO 2020 will now be applicable from F.Y. 2020-

21 and filing of Form INC 20A (Commencement of

Business) relaxed by additional period of 6

months.

// 11

Measures Taken By Various Departments

During COVID-19

Reserve Bank of India (“RBI”)

Moratorium of total 6 months i.e. till 31 August

2020 on payment of instalments and loans.

A one-time restructuring of existing loans to

MSMEs without a downgrade in the asset

classification.

INR 15,000 crore to SIDBI to enable it to provide

liquidity support to MSME sector and meet

sectoral credit needs.

© 2020

GOODS & SERVICES TAX (GST)

MGB Profile

Audit under provisions of GST

Ministry of Labour and

Employment

GOI will pay EPF contribution of both employer

and employee for the months from March to

August for those establishments that have upto

100 employees and 90 percent of whom earn

under INR 15,000 monthly wage.

For establishments not covered above, the

Statutory EPF contribution of both employer and

employee has been reduced to 10% for the

months of May, June and July 2020.

// 12

Measures Taken By Various Departments

During COVID-19

Ministry of Finance - Goods &

Services Tax (“GST”)

Due date for Annual Return and GST Audit for F.Y.

2018-19 extended to 30/09/2020.

Extension in FORM GSTR-3B, due in March-April-May

2020 till last week of June 2020.

Penalties and interests waived/reduced for late filing of

GST returns.

Custom Clearance till 30 June 2020 will operate 24*7 as

an essential service.

Sab Ka Vishwas (Indirect Tax Scheme) – Due date

extended to 30 June 2020 without interest.

Companies can also now file return in FORM GSTR 3B,

for the period 21 April 2020 to 30 June 2020, through

EVC (electronic Verification Code). Only Proprietorship

and Partnership Firms had this option earlier.

Entities having NIL return in FORM GSTR 3B, now can

file through SMS using registered mobile number and

verified based on one time password.

© 2020

Guaranteed Emergency Credit Line (GECL)

Scheme

Under the Scheme, 100% guarantee coverage to be

provided by National Credit Guarantee Trustee Company

Limited for additional funding of up to Rs. Three lakh crore

to eligible MSMEs and interested MUDRA. borrowers, in

the form of a Guaranteed Emergency Credit Line (GECL)

facility.

Equity infusion for MSMEs through Fund of

Funds

Equity infusion of Rs. 50,000 crore for MSMEs through

Fund of Funds. This will establish a framework to help

MSMEs in capacity augmentation. This will also provide an

opportunity to get listed in stock exchanges.

Subordinate Debt for Stressed MSMEs

// 13

Proposals Announced During AtmaNirbhar

Bharat Abhiyan presentation

Provision of Rs 20,000 crore as subordinate debt to

provide equity support to the stressed MSMEs. This will

benefit 2 lakh stressed MSMEs.

Tax Collection at Source for the specified

receipts & Tax Deduction at Source (non-

salaried specified payments) rate reduction for

F.Y. 2020-21 by 25%.

All pending refunds to Charitable Trusts and

Non-Corporate Business and Professions

including Proprietorship, Partnership, LLP and

Co-operatives shall be issued immediately.

Due date for Income Tax Returns for F.Y. 2019-

20 will be extended from 31 July 2020 & 31

October 2020 to 30 November 2020 and for

Tax Audit from 30 September 2020 to 31

October 2020.

Date of Assessments getting barred on 30

September 2020 extended to 31 December

2020.

Period of Vivad se Vishwas scheme for making

payment without additional amount extended to

31 December 2020.

Tax Measures

© 2020

// 14

Proposals Announced During AtmaNirbhar

Bharat Abhiyan presentation

Minimum threshold to initiate

Insolvency proceedings has

been raised to INR 1 crore

from INR 1 lakh which largely

insulates MSMEs.

Suspension of fresh initiation of

Insolvency proceedings up to

one year, depending upon the

pandemic situation.

Empowering Central

government to exclude COVID

19 related debt from the

definition of default.

Special insolvency resolution

framework for MSMEs under

Section 240A of the Insolvency

and Bankruptcy Code, 2016 to

be notified soon.

Ease of Doing Business

e-market linkage for MSMEs

to be promoted to act as a

replacement for trade fairs

and exhibitions.

Fintech will be used to

enhance transaction based

lending using the data

generated by the e-

marketplace.

MSME receivables from

Government and Central

Public Sector Undertakings to

be released in 45 days.

Global tenders will be

disallowed in Government

procurement tenders upto

INR 200 crores.

Other important

announcements

Decriminalization of

Companies Act defaults

Majority of Compoundable

offence sections will be shifted

to Internal Adjustment

Mechanism.

Decriminalization of

Companies Act violations

involving minor technical and

procedural defaults such as

shortcomings in CSR

Reporting, Inadequacies in

Board Report, filing defaults,

delay in holding AGM etc.

Lower penalties for all defaults

for Small Companies, One-

person Companies, Producer

Companies & Startups.

© 2020

1. Tracking expenses against the Revenue Status :

2. Understanding amendments in various laws :

4. Liquidity challenges :

3. Restructuring of businesses :

It is important for businesses to conduct a proper assessment of their fixed

and variable expenses vis a vis revenues, this will help the entrepreneurs

in planning ahead in the current disconcerted market

The Corporates need to identify and keep track of the changes in existing

laws which will impact their businesses and accordingly change strategies,

induct experts and accordingly formulate suitable action plan.

Handling these challenging times may require the organizations to adopt

proactive realignment / restructuring measures. Businesses that wish to

take advantage of these opportunities can consider restructuring through

expansions, joint ventures, and divesting struggling and non-core assets.

The Companies might have to face the liquidity challenges forcing them to

identify alternate financing modes. Various fund raising strategies will have

to be formulated taking into consideration the laws applicable to the

Company and its implication.

// 15

Crisis Management During COVID-19 -

Turning Challenges into Opportunities:

© 2020

5. Contractual Obligations:

Businesses will have to consider what obligations can and cannot be met

during the national lockdown, and whether contracts can continue afoot once

COVID-19 restrictions are lifted. Relevant contracts needs to be checked to

see whether force majeure provisions will apply to COVID-19 and ensure that

any notice and timing requirements are complied with and consider mitigation

steps.

7. Reducing costs through Outsourcing :

Handling these challenging times may require the organizations to adopt

proactive realignment / restructuring measures. Businesses that wish to take

advantage of these opportunities can consider restructuring through

expansions, joint ventures, and divesting struggling and non-core assets.

6. Going digital to reduce concentration risk :

Its become imperative to digitally transform our places of work to be able to

operate effectively. Those companies who are able to use technology well to

keep going and rethink their business model for the future by fast-tracking

digital transformation will be ones ahead of their competition.

// 16

Crisis Management During COVID-19 -

Turning Challenges into Opportunities:

© 2020

Any Assistance?

// 1 7

Muffaddal is a qualified Company Secretary and LL.B with around 10 years

experience in the field of Legal and Compliance area.

He currently leads Legal, Compliance and Business Support vertical at

MGB Business Advisors Private Limited. He focuses on domestic and

cross border business set up, advising startups and Corporates on

regulatory framework and other varied corporate law matters.

Muffaddal Jawadwala

CS & LL.B

mjawadwala@mgbco.com

Peninsula Business Park, 19th Floor,

Tower B, Lower Parel,

Mumbai - 400013

We at MGB, help businesses achieve their potential by providing the necessary support and endeavour to deliver results

that match your business needs.

Connect with us to understand the above benefits better.

© 2020