MSMEs are the Backbone of the Indian Economy

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By Tejas Goenka, Managing Director, Tally Solutions

“MSMEs are the backbone of the Indian economy and have an important role to play in the country becoming self-reliant. Given 2 years of uncertainty and the on and off shutdowns, these businesses have faced issues with constrained cash flows, increasing input costs, and a continuous compliance burden. The government has taken several steps to help alleviate these concerns, and several more, with a primary focus on increasing access to lower-cost capital, relaxing conditions under the GST Law related to availing Input Tax Credit, along with improvements to curb increases in input costs will go a long way in uplifting the sector that provides the most employment in the country.”

Considerations for Software Product Industry

“India has the potential to create the next software product hotspot in the world. We have the talent and the will to achieve this dream. Digital India and Make in India movements of the Government have certainly paved the way for the industry, but further regulatory support will unlock the true potential of this industry.

The first thing is to recognise Software Products as a category in its own right where classifications are under both the HSN and SAC codes. This classification will help in providing clarity and appropriate incentivisation for the industry. It is then important to recognise that software products are research and development-led businesses that can have long gestation periods to commercialisation, and therefore the Government should continue to incentivize the research and development credits.

Sales and distribution of software products with the current classifications are difficult and cashflow consuming, whereas the same cannot be said for other products in the country. Presently, the Income Tax rules do not distinguish products and services and so TDS at 10 percent is applicable on the sale of software versus TDS at 0.1 percent for goods. A correction here is imperative to spur growth for the domestic sale of software products, especially to smaller businesses across the country.

Finally, the government should treat this industry similar to a high skilled manufacturing company since many of the contours are similar and so a reduction in the corporate tax rate to 15 percent can enable large investments into the sector creating highly skilled and highly paid jobs.” (Deccan Herald)