Introduction

On May 13, 2020, the Finance Minister, Nirmala Sitharaman (“FM”) outlined the first tranche of the stimulus package of Rs. 20 lac crores (Indian Rupees twenty lac crores) (“Package”). The Package will be announced under various tranches and in Tranche I 15 (fifteen) measures were announced by the FM out of which 6 (six) measures are for micro, small and  medium enterprises (“MSMEs”), 2 (two) measures relate to employee provident fund (“EPF”), 2 (two) measures relate to non-banking financial companies (“NBFC”), housing finance companies (“HFC”) and micro finance institutions (“MFI”), 1 (one) measure each for power distribution companies (“Discoms”), contractors and real estate sector and 3 (three) measures for tax.

Measures for MSMEs

Collateral free and automatic loan worth Rs. 3 lac crores (Indian Rupees three lac crores) shall be given to those MSMEs which have a turnover of upto Rs. 100 crores (Indian Rupees hundred crores) or have an outstanding loan of upto Rs. 25 crores (Indian Rupees twenty five crores). Such loans shall be valid upto October 31, 2020 and shall have a tenure of 4 (four) years with moratorium period for the first 12 (twelve) months. 100% (one hundred percent) credit guarantee by the government of India as a cover for banks and NBFCs over the principal and the interest amount.

MSMEs, which are either stressed or are a non performing asset (NPA), are eligible for a subordinate debt for a total value of Rs. 20,000 crores (Indian Rupees twenty thousand crores). Such subordinate debts shall be unsecured and rank below other securities and senior loans of such MSMEs. Partial guarantee support of Rs. 4,000 crores (Indian Rupees four thousand crores) to be provided by the government.

For MSMEs which have potential and are viable, a fund of funds with a corpus of Rs. 50,000 crores (Indian Rupees fifty thousand crores) has been announced so that such entities can expand and get listed on a security exchange.

The scope of definition of MSME as defined under Micro, Small & Medium Enterprises Development Act, 2006 (“MSME Act”) has been expanded. In the existing definition, there exists a distinction between a manufacturing enterprise and a service enterprise and eligibility to be an MSME is decided on the basis of amount of investment in MSME. In the revised definition, the distinction between the investment in manufacturing enterprise and service enterprise has been removed. Alternatively, turnover can also be now considered a criteria for the definition of MSME. The newly introduced investment limits and turnover is

a. Micro Enterprises -  investment upto Rs. 1 crore (Indian Rupees one crore) or turnover upto Rs. 5 crores (Indian Rupees five crores)

b. Small Enterprises - investment upto Rs. 10 crores (Indian Rupees ten crores) or turnover upto Rs. 50 crores (Indian Rupees fifty crores)

c. Medium Enterprises - investment upto Rs. 20 crores (Indian Rupees twenty crores) or turnover upto Rs. 100 crores (Indian Rupees hundred crores).

The government tenders upto Rs. 200 crores (Indian Rupees two hundred crores) shall no longer be through global tender and necessary amendments to General Financial Rules shall be made. This has been done to prevent MSMEs from unfair competitions from foreign companies.

In order to infuse liquidity, the FM has announced that all the receivables by MSMEs shall be honoured by the government and the central public sector enterprises (“CPSE”) within the next 45 (forty-five) days. Further e-linkage will be provided in place of trade fairs and exhibitions in order to increase the participation of MSMEs.

Measures in Relation to EPF

The measures announced under the Pradhan Mantri Gareeb Kalyan Yojana is applicable to those entities which have upto 100 (one hundred) employees and 90% (ninety percent) of whom earn less than Rs. 15,000 (Indian Rupees fifteen thousand) per month. Such entities and their employees are exempted from making contribution to the provident fund. This scheme has been extended for another 3 (three) months as it stands to benefit approximately 72,22,000 (seventy two lacs twenty two thousand) employees and infuses liquidity of Rs. 2500 crores (Indian Rupees two thousand five hundred crores).

The entities which are not covered under the scheme stated above, have been given a relaxation to contribute 10% (ten percent) instead of 12% (twelve percent) to the provident fund. While the employees of CPSEs and state entities also stand to benefit but the CPSE and state entities shall continue to contribute 12% (twelve percent) to the provident fund.

Measures for NBFCs, HFC and MFIs

Liquidity scheme of Rs. 30,000 crores (Indian Rupees thirty thousand crores) for NBFC, HFCs and MFIs.

The banks can invest in investment grade debt papers issued by NBFCs in both primary and secondary market. All such debt papers shall be guaranteed by the government of India.

This scheme is in furtherance to the Reserve Bank of India’s Targeted Lending Term Repo Operations (TLTRO 2.0). The funds availed under TLTRO 2.0 have to be deployed in the investment grade bonds, commercial papers and non-convertible debentures of NBFCs and MFIs. Investment grade debt includes low rated securities.

A package of Rs. 45,000 crores (Indian Rupees forty five thousand crores) for giving partial guarantee under which 20% (twenty percent) loss to any bank under the liquidity scheme will be borne by the government of India. Such guarantee will be on primary bond issuance and commercial papers which are graded even AA or below or even unrated.

Discom

In the light of the cash flow issue faced by the Discoms, an emergency liquidity injection of Rs. 90,000 crores (Indian Rupees ninety thousand crores) is announced. Power Finance Corporation Limited and Rural Electrification Corporation Limited will infuse such liquidity into the Discoms in 2 (two) instalments and the benefits will only be given to those companies which ultimately pass on the benefits to the consumers.

Contractors

The government has announced that the central agencies like railways, roadways and highways authorities, and public works department shall give an extension of upto 6 (six) months to contractors for their obligations under the contracts like completion of work and the concession period may also be further extended without any cost to the contractors. Such relief shall be applicable on the construction contracts and even supply of goods and services contracts with the central agencies. Further, a partial bank guarantee for the works completed may be released. For e.g. if there has been a 60% (sixty percent) progress in the work, bank guarantee upto such an extent may be released.

Real Estate

The Ministry of Housing and Urban Development shall release an advisory to the states and union territories COVID-19 be treated as an act of god and therefore a force majeure event under real estate projects.

Further, the registration and completion date for all the registered project ending on or after March 25, 2020 must be extended suo moto by the concerned RERA Authorities, without any individual applications and fresh project registration certificates shall be issued by the concerned RERA Authorities with the revised timelines. This period may further be extended by the concerned RERA Authorities by upto 3 (three) months.

Consequently, compliance requirements under Real Estate Regulation and Development Act, 2016 will also be extended further.

Taxation

Following are the reliefs given in relation to taxation:

1. 25% (twenty five percent) deduction on (a) the rates for tax deducted at source for specified non salaried payments made to the residents; and (b) tax collection at source for specified receipts, till the end of the financial year. The eligible payments are on transactions such as professional fee, contracts, rent, interest etc.
2. The pending income tax refunds for charitable trust, limited liability partnerships, non-corporates, proprietorships, professionals, partnerships and cooperatives shall be issued immediately.
3. The due date for (a) filing income tax return has been extended for the financial year 2019-20 from September 30, 2020 and October 31, 2020 to November 30, 2020; (b) tax audit has been extended from September 30, 2020 to October 31, 2020; (c) assessments getting barred has been extended from September 30, 2020 to December 31, 2020 and similarly from March 31, 2021 to September 30, 2021; and (d) payments under Vivaad se Vishwas  Scheme can be made without any additional amount till December 31, 2020.

This update has been contributed by Pratish Panjabi (Partner) and Shivani Agarwal (Associates).