How Will 2018 Tax Reform Affect Your Small Business?

Finance Minister Arun Jaitley announced special schemes for the micro, small and medium enterprises in the Union Budget 2018. No major changes in indirect taxation were announced as they are now under the purview of the Goods and Services(GST) Tax. However, there were several other announcements made related to other aspects of taxation. Let’s see the various effects these tax announcements are expected to have on your small business.

  1. Reduction in corporate tax

The corporate tax rate for businesses with an annual turnover of up to Rs.250 crore was reduced from 30% to 25%. Previously companies with a turnover of up to Rs.50 crore were in the 25% tax bracket but from this fiscal, firms generating up to Rs.250 crore will face lower tax liability. However, companies in the income slab of Rs.250+ crore are still liable to 30% corporate tax.

The Finance Minister opined that by including businesses with turnover up to Rs.250 crore in the 25% tax bracket, it will be beneficial for the entire MSME sector. The purpose of this shift is to create a larger investment corpus for businesses by reducing the tax burden on a major percentage of MSMEs operating in India.

Thus, if your business has a turnover of up to Rs.250 crore, you can become more competitive by investing in R&D activities.

  1. Increase in customs duty

To promote the Make in India initiative, the 2018 budget focused on increasing the customs duty for imported goods. Customs duty on processed food will be increased to almost 50%, perfumes and toiletry will notice a fee of 20%, the same for motor vehicles will be 25%.

However, the government also proposed to decrease the customs duty on solar tempered glass, raw materials, accessories for making cochlear implants and cashew nuts. This would go a long way in giving you, as a small business owner, a level playing field to compete with established players.

  1. Abolition of educational cess  

The Government had proposed to abolish the education cess and secondary and higher education cess levied on imported products. The Budget suggested to replace the same with a social welfare surcharge, to be charged at 10% of customs duty.  However, goods previously exempted from educational and secondary and higher education cess would also be exempted from this surcharge.

Certain goods are expected to gain an exemption from the 10% surcharge, attracting only a 3% fee on customs duty. Thus, businesses generating a turnover of less than Rs.50 crore will enjoy a 3% tax on customs duty on certain items.

On the other hand, businesses with a turnover of Rs.50-250 crore will now face a lower tax burden of 29.12% from 34.61%. The abolition of educational cess can help you scale operations of your small business through business loans provided by NBFCs like Bajaj Finserv.

  1. Tax exemption for FCP firms

The Union Budget 2018 also suggested 100% tax exemption for companies engaged in primary agricultural activities and Farm Production Companies(FCP). Thus, if you own an FCP firm, you can invest in acquiring new assets, expanding/stocking inventory and manage working capital needs.

Also Read : Essential Small Business Tax Tips

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