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Contributed on April 3, 2020

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NASSCOM Representations on Relief for IT MSMEs and Start-ups

Blog: NASSCOM Official Blog

Against the backdrop of the Covid19 Pandemic, IT Micro, Small and Medium Enterprises (MSMEs) and Start-ups have been facing a multitude of challenges in ensuring business continuity. Working closely with respective sector councils, NASSCOM submitted its representations on relief measures for IT MSMEs and Start-ups, for the consideration of the Government of India on March 28, 2020.

In its representations, NASSCOM focused upon the need for ensuring business continuity for IT MSMEs and Start-ups through measures that ensure adequate cash flows, access to working capital, as well as measures that enable enterprises to scale down on operational costs and retain employment – through the duration of the crisis.

In this regard, specific submissions were made regarding:

Cash Flow and Access to Capital: NASSCOM requested the Government to consider expediting the processing of tax refunds (both direct & indirect tax) and refunding all due amounts within the next 15 days. It was also request that the Government direct all government departments (Centre/State)/Public Sector Undertakings (PSUs)/large corporations, to release all pending payments/invoice receivables raised by the MSMEs within 15 working days.

NASSCOM also recommended additional measures to ease cash-flow related issues, increasing speedy access and approval for loans (including MUDRA loans, and amounts extended through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)).

Other recommendations include allowing access to collateral free loans/line of credit in nominal amount through PSU banks to MSME/SME/DPIIT certified/affiliated start-ups based on their previous Goods and Service Tax (GST) returns. Along the same lines, NASSCOM also suggested the provision of collateral free overdraft facilities/interest free and equity convertible funding (subject to requisite due diligence on credit history and cash flow constraints) to the extent of three months’ salary obligations, for a term of maximum two years.

Lastly, NASSCOM also urged the Government to consider a relaxation of penalties/interest, etc. for premature closure of fixed deposits (FDs) and other instruments; and considering (i) postponement of interest payment by a quarter and regularisation of loan in 12 months; (ii) relaxation of loan interest payments; and (iii) interest rate reduction/subvention by 3% on existing loans, and 5% on working capital loans for Start-ups and MSMEs.

Operational Costs: NASSCOM requested the Government to consider providing rental subsidies for Government-owned/regulated/managed workspaces, in order to rationalize operational costs for the duration of the crisis. This includes Government IT Parks.

NASSCOM also recommended that the payment of property tax for FY 2020-21 for all commercial properties to be permitted to be delayed by 6 months.

Market Creation and Stimulating Demand: NASSCOM urged the Government to consider Mandatory implementation of a progressive procurement framework (Model RFP) for all IT buying in States and at Central Level. It was also suggested that Governments and PSUs to be encouraged to procure Make-in-India software products (to meet at least 40% of the procurement requirement) as opposed to custom software development.

Employment Related: In view of the impact that the disruption caused by the pandemic can have on employees of IT MSMEs and Start-ups, it was recommended that the Government take certain measures enabling employers and employees to tide over the present crisis with minimal disruption. These recommendations include:

1. Allowing a one-time Provident Fund (PF) ‘out’ option for employees. This could offset start-ups and MSMEs’ inability to cover for increments in this subdued business environment and enable them to offer an effective increase take home pay of the employees – by transferring the employee and employer PF contributions directly to the employee.
2. Reimbursing half of the paid leaves’ cost to the companies i.e. for a 13-week period. This becomes imperative in the case of maternity leaves. Given the public health situation at the moment, this would ensure new mothers can stay at home.
3. Allowing reduction of paid leaves to not more than 12.

Regulatory Compliances: Given the strain on resources at the disposal of IT MSMEs and Start-ups, it was requested that the Government consider delaying/ holding in abeyance certain regulatory compliances, for the duration of the crisis. These include:

1. waiving off interest and penalties for delayed payments of TDS and GST due for the month of March, April and May 2020 if such TDS/ GST payment is made by June 30, 2020.
2. keeping the requirement for filing a Foreign Inward Remittance Certificate (FIRC) in abeyance till June 30, 2020, since foreign banks in certain instances are unable to provide companies with the FIRC in a timely manner.
3. providing an extension till May 31, 2020 for the payment of advance tax for quarter ending March 31.
4. providing a waiver of restrictions for claiming an expense as a deduction under section 40 of Income Tax Act in case of non-payment of TDS due to issues of cash flow management.

Other: Given the disruption caused to the business environment in wake of the pandemic, NASSCOM urged the government to consider suspending their 2020 EBITDA guidance for 3-6 months, as the disruption could severely impact valuations, and negatively impact MSMEs’ and Start-ups’ ability to raise capital coming out of the crisis.

Should you have any questions relating to the present submissions, please write to policy@nasscom.in. For more information relating to the Government’s response to the Covid19 outbreak, and advisories issued in view thereof, visit NASSCOM’s Covid19 Advisories Dashboard at: https://www.nasscom.in/advisories-covid-19.

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