Udyam Registration, formerly known as MSME registration, is not only about formalizing your business in India but also comes with various tax benefits and incentives. The Government of India recognizes the significance of Micro, Small, and Medium Enterprises (MSMEs) in driving economic growth and offers various tax-related advantages to encourage their growth and sustainability. In this article, we’ll explore the tax benefits of Udyam Registration that entrepreneurs and business owners should be aware of.
1. Income Tax Exemptions
One of the primary tax benefits for MSMEs registered under Udyam is the income tax exemption available under Section 80M of the Income Tax Act. This exemption is applicable to income earned from inter-corporate dividends. It reduces the tax liability for MSMEs, allowing them to retain more earnings for business reinvestment and expansion.
2. Lower Income Tax Rates
In the Union Budget of 2021, the government introduced a new taxation regime with lower income tax rates, which also benefits Udyam-registered businesses. MSMEs can choose between the existing tax regime with deductions and exemptions or opt for the new tax regime with reduced tax rates. This flexibility allows businesses to select the tax structure that suits their financial goals.
3. Reduced Corporate Tax Rates
The government has taken significant steps to lower corporate tax rates for MSMEs in India. In September 2019, the corporate tax rate for domestic companies, including MSMEs, was reduced from 30% to 22%. Additionally, new manufacturing companies set up after October 1, 2019, enjoy a reduced corporate tax rate of 15%, further incentivizing investment in manufacturing and the MSME sector.
4. Presumptive Taxation Scheme
For small businesses with a turnover of up to ₹2 crore, Udyam Registration offers the option of the Presumptive Taxation Scheme under Section 44AD of the Income Tax Act. This scheme allows businesses to declare their income at a prescribed rate, reducing the burden of maintaining detailed books of accounts. It simplifies tax compliance and provides financial relief to smaller enterprises.
5. Carry Forward of Losses
Udyam-registered businesses can carry forward their losses for up to eight years, providing a cushion against future profits. This carry-forward provision can help businesses offset future taxable income and reduce their tax liability.
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6. Customized Tax Benefits
Different states in India may offer additional tax incentives and benefits to MSMEs, depending on their location and nature of business. These benefits can include exemptions from state-level taxes, reduced stamp duty, and more. Entrepreneurs should explore the specific incentives available in their state.
7. GST Benefits
Businesses registered under Udyam may also enjoy certain Goods and Services Tax (GST) benefits, such as higher threshold limits for GST registration and lower GST rates for specific categories of goods and services. These benefits ease the compliance burden and reduce the overall tax liability for MSMEs.
Udyam Registration opens the door to a multitude of tax benefits for micro, small, and medium enterprises in India. These benefits not only provide financial relief but also promote a conducive business environment for growth and innovation. Entrepreneurs and business owners should leverage these incentives to maximize their profitability, reinvest in their enterprises, and contribute to the economic development of the country. However, it is advisable to consult with a tax expert or financial advisor to fully understand and optimize the tax benefits available under Udyam Registration.