Rs. 3,00,000 Cr Package scheme details

(Emergency Credit Line Guarantee Scheme / ECLGS)

Operational Guidelines

1. Name of the Scheme: 

The Scheme shall be named as ‘Emergency Credit Line Guarantee Scheme (ECLGS)’ (hereinafter referred as the ‘Scheme’) and the credit product for which guarantee would be provided under the Scheme shall be named as ‘Guaranteed Emergency Credit Line (GECL)’ 

2. Purpose of the Scheme: 

To provide 100% guarantee coverage for the GECL, which shall be a pre-approved sanction limit of up to 20% of loan outstanding as on 29th February, 2020 to eligible borrowers, in the form of additional working capital term loan facility (in case of banks and Financial Institutions), and additional term loan facility (in case of NBFCs) from all Member Lending Institutions (MLIs) to eligible Business Enterprises / Micro, Small and Medium Enterprise (MSME) borrowers, including interested PMMY borrowers , in view of COVID-19 crisis, as a special Scheme. 

3. Date of commencement 

Scheme shall come into force from the date of issue of these guidelines by NCGTC. 

4. Definitions 

For the purposes of this Scheme – 

• “Amount in Default” means the principal and interest amount outstanding in the account of the borrower in respect of term loan/working capital term loan facility (including interest) as the case may be, as on the date of the account becoming NPA, or on the date of lodgment of claim application, whichever is lower, or on such other date as may be specified by Trustee Company for preferring any claim against the guarantee cover subject to a maximum of amount guaranteed.

• “Credit Facility” means financial assistance provided under the Scheme by way of additional working capital term loan facility (in case of banks and Financial Institutions), and additional term loan facility (in case of NBFCs) extended by all Member Lending Institution (MLI) to eligible Business Enterprises / Micro, Small and Medium Enterprise (MSME) borrowers. The financial assistance provided as part of the Scheme is to be operated as a separate loan account.

• “Eligible Borrower” means all Business Enterprises / MSME institution borrower accounts with outstanding loans of up to Rs. 25 crore as on 29.2.2020, and annual turnover of up to Rs. 100 crore in FY 2019-20. In case accounts for FY 2019-20 are yet to be audited/finalized, the MLI may rely upon the borrower’s declaration of turnover. The Scheme is valid for existing customers on the books of the MLI. Borrower accounts should be less than 60 days past due as on 29th February, 2020 in order to be eligible under the Scheme. For the purpose of this Scheme, Business Enterprises / MSMEs would also include loans covered under Pradhan Mantri Mudra Yojana (PMMY). ‘Guarantee Cover’ means maximum cover available per eligible borrower of the amount in default in respect of the credit facility extended by the lending institution. For this Scheme, the guarantee coverage would be 100% of the amount in default.

• “Member Lending Institution(s)” (MLI) 

1. Banks: All Scheduled Commercial Banks. 
2. Financial Institutions: As defined in sub-clause (i) of clause (c) of Section 45-I of Reserve Bank of India Act. 
3. NBFC: "Non-Banking Financial Company” means a non-banking financial company as defined in clause (f) of section 45-I of the RBI Act, 1934 and which has its principal business as defined by RBI and has been granted a certificate of registration under sub-section (1) of section 3 of the Act. All NBFCs which have been in operation for 2 years as on 29th February, 2020 would be eligible under the Scheme

• “Non-Performing Assets” means an asset classified as non-performing based on the instructions and guidelines issued by the Reserve Bank of India from time to time 
• “Primary security” in respect of a credit facility shall mean the assets created out of the credit facility so extended 
• “Interest Rate” for a lending institution means the rate so declared by that lending institution from time to time as per Reserve Bank of India guidelines based on which interest rate applicable for the loan will be determined. 
• “Tenure of guarantee cover” means the maximum period of guarantee cover from the Guarantee sanction date, and it shall be co-terminus with the tenor of the loan under GECL 

SCOPE AND EXTENT OF THE SCHEME 

5. Duration 

• The Scheme would be applicable to all loans sanctioned under GECL during the period from the date of issue of these guidelines by NCGTC to 31.10.2020, or till an amount of Rs 3,00,000 crore is sanctioned under the GECL, whichever is earlier. 

6. Eligible Borrowers 

• All Business Enterprises /MSME borrower accounts with combined outstanding loans across all MLIs of up to Rs. 25 crore as on 29.2.2020, and annual turnover of up to Rs. 100 crore for FY 2019-20 are eligible for the Scheme. MLIs are expected to check with credit bureau the overall outstanding of the borrower to assess the eligibility of the borrower. 
• Loans provided to Business Enterprises / MSMEs constituted as Proprietorship, Partnership, registered company, trusts and Limited Liability Partnerships (LLPs) shall be eligible under the Scheme. For instance, any existing loan such as CV loan taken by an entity shall be covered but CV loan taken by promoter or director in personal capacity shall not be covered. 

• For the purpose of this Scheme, Business Enterprises / MSMEs would include loans covered under Pradhan Mantri Mudra Yojana extended on or before 29.2.2020, and reported on the MUDRA portal. All eligibility conditions including the condition related to Days past due would also apply to PMMY loans. 
• For loans having co-applicant, only those existing loans where entity is the primary co-applicant are covered under the Scheme for additional emergency funding. 
• Loans provided in individual capacity are not covered under the Scheme. 
• The Scheme is valid for existing customers on the books of the MLIs. Borrower accounts should be less than or equal to 60 days past due as on 29th February, 2020 in order to be eligible under the Scheme. i.e. All borrowers which have not been classified as SMA 2 or NPA by any of the MLIs as on 29th February, 2020 will be eligible for the Scheme 
• Days Past Due status as on 29.2.2020 to be checked across MLIs from credit bureau. 
• Business Enterprises / MSME borrower accounts which had NPA or SMA-2 status as on 29.2.2020 shall not be eligible under the Scheme. 
• Business Enterprises / MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to Business Enterprises / MSMEs that are not required to obtain GST registration. 
• An ‘opt-out’ option should be provided to the eligible Business Enterprises / MSME borrowers to enable them to choose whether they wish to opt out of the GECL facility. 
• For the purpose of this Scheme it is not necessary that the existing loans of the borrowers should be covered under the existing NCGTC or CGTMSE Scheme.
• Some examples on the eligibility of the borrowers are indicated below 

7. Loan Amount eligible under the Guarantee Coverage 

• The amount of GECL funding to eligible Business Enterprises / MSME borrowers either in the form of additional working capital term loan facility (in case of banks and Financial Institutions), and additional term loan facility (in case of NBFCs) would be up to 20% of their total outstanding loans up to Rs. 25 crore as on 29th February, 2020, subject to the borrower meeting all the eligibility criteria. 
• Total Outstanding Amount would comprise of the on-balance sheet exposure such as outstanding amount across WC loans, term loans and WCTL loans. Off-balance sheet and non-fund based exposures will be excluded. 
• MLIs are expected to check with credit bureau the overall outstanding of the borrower to assess the overall additional loan amount eligible for sanction under the Scheme. 
• MLIs would be required to open a separate account for Credit Facility extended through the Scheme 
• Loans extended through current Government schemes such as PMEGP, PMMY etc. would continue to be categorized under that scheme as earlier. WCTL/Term Loans under this Scheme shall be over and above the existing loan. 
• In case a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or multiple lenders depending upon the agreement between the borrower and the MLI. 
• In case the borrower wishes to take from any lender an amount more than the proportional 20% of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from all other lenders. 
• No NOC will, however, be required if the GECL availed from a particular lender is limited to the proportional 20% of the outstanding credit that the borrower has with that lender. 
• MLIs are expected to have simple and enabling criteria to assess the borrower eligibility. Since the loans are being provided to existing borrowers it is expected that the time required for due diligence would be minimal in nature. MLIs should work towards enabling access of this facility to all the eligible borrowers by educating borrowers regarding the Scheme and steps to avail credit under the Scheme.
• Examples to calculate the loan amount covered under the Guarantee coverage: 

8. Interest Rate of Credit under the Scheme 

Interest Rate on GECL shall be capped as under: 

• For Banks and FIs, lending rate linked to one of the external benchmark rates prescribed by RBI +1% subject to a maximum of 9.25% per annum. 
• For NBFCs, the interest rate on GECL shall not exceed 14% per annum. 
• Since the additional pre-approved facility is to be provided to existing customers, no additional processing fee shall be charged by MLIs to borrowers. 
• No penal interest due to any non-compliance of the already accepted covenants on the existing credit facilities may be charged on additional loans during the sanction time. 

9. Security 

• The additional WCTL (in case of banks and FIs)/ Term loan (in case of NBFCs) facility granted under GECL shall rank pari passu with the existing credit facilities in terms of cash flows and security, with charge on the assets financed under the Scheme to be created within a period of three months from the date of disbursal. 
• No additional collateral shall be asked for additional funding under GECL. 

10. Guarantee Fee 

• No Guarantee Fee shall be charged from the MLIs by NCGTC for the Credit facilities provided under the Scheme. 

11. Definition of Default 

• The definition of default for borrowers shall be as per the instructions and guidelines issued by the Reserve Bank of India from time to time under extant norms on income recognition, asset classification and provisioning.  

Following are the major & important amendments proposed by the Hon’le Finance Minister in her budget presented on 1st February 2020:

1. Rates of Income tax

The Finance Minister has given option for two schemes of rates of taxation and assesse is free to choose any one of the following schemes:

*Conditions:

A   Deduction u/ch VI-A not to be claimed:

In case where lower rates of taxation are opted (i.e. new proposed scheme), deduction under chapter VI-A shall not be allowed. To elaborate, no deduction u/s 80C (Investments in PPF, LIC, NSC etc.), u/s 80D (Medi-claim), u/s 80E (Interest on Education loan), u/s 80G (Donation), u/s 80U (Disability deduction), u/s 80GGA & u/s 80GGC (donation to political parties) etc. are not allowed to be claimed. However the only deduction that shall be allowed are, u/s 80CCD (National Pension System upto Rs. 50,000/-) and u/s 80 JJA (Deduction in respect of employment of new employees from business income). Further    a salaried employee would not be able to claim deduction of leave travel allowance, House rent allowance, Standard deduction or other exemption for allowances and perquisites. Also a business assesse would not be able to set off brought forward loss and unabsorbed depreciation.

B   Further conditions:

An Individual or HUF having Business Income would be able to exercise the option once and shall be valid for all subsequent years. This option can be withdrawn only once for a previous year thereafter he shall never be able to exercise option under this section. An Individual or HUF having no Business Income shall be able to exercise this option in every previous year.

2 Residential Status :

An Individual shall be treated as resident if he has been in India for a period of 120 days or more (earlier it was stay of 182 days or more in India) in a year or has been in India for a period of 365 days or more within 4 years preceding that year.

3 Due Dates for filing Return of Income:

Certain changes have been proposed in respect of due dates for filing of Return of Income.

4 Dividend Distribution Tax:

According to the proposed amendment, Companies would no longer be required to pay Dividend Distribution Tax (DDT) from now onwards. However, Dividend shall be taxed in the hands of recipient of Dividend at the applicable rates of Income tax.

5 Audit of Books of Accounts:

It is proposed to raise limit of turnover for the purpose of getting books of accounts audited u/s 44AB from Rs. 1 crore to Rs. 5 crore. However, the increase in limit of audit turnover is applicable only subject to following conditions:

(i) Aggregate of sales / turnover or gross receipts in cash does not exceed 5% of total sales/turnover or receipts during the financial year

AND

(ii) Aggregate of expenditure in cash does not exceed 5% of total expenditure.

6 Cost of Acquisition for Long term capital gain:

In respect of asset acquired before 1st April 2001, the Fair market value as at 01-04-2001 shall not exceed the stamp value as on 01-04-2001. As such, an assessee would not be able to claim Fair market value in excess of Stamp duty value limiting thereby the benefit of Indexation.

7 Lower TDS on fees for Technical Services:

Under the amended proposal TDS is required to be deducted at 2% instead of 10% on fees for technical services other than professional services.

8 TDS on E-commerce transactions:

Under this proposal, a new section 194-O is proposed to be inserted where, TDS @ 1% would be required to be deducted from the gross amount of sales or services or both payable by e-commerce operator (owner of the e-commerce platform) to e-commerce participant (who uses the e-commerce platform for providing services or selling goods). However no TDS would be made in case of Individual or HUF if gross amount of sales or services does not exceed Rs. 5,00,000/- AND the individual or HUF provides PAN / Aadhar to the e-commerce operator.

9 Vivad Se Vikas Scheme:

According to us, this is the major highlight of this Budget. This government has taken many steps in past few years to reduce the tax litigations. The Sabka Vishwas scheme resulted into settling over 1,89,000 cases.

As of now, there are almost 4,83,000 direct tax cases pending in various appellate forums i.e. Commissioner (Appeals), ITAT, High Court and Supreme Court. Under the "Vivad Se Vikas" scheme, a tax payer would be required to pay only the amount of disputed taxes and will get complete waiver of interest and penalty portion, provided that the Taxpayer pays the tax amount by 31st March, 2020. Those who avail this scheme after 31st March, 2020 will have to pay a certain additional amount. The scheme will remain open till 30th June, 2020.

Taxpayers in whose cases appeals are pending at any level can avail benefit from this scheme.

Authored by-

Shaishav D. Mehta, FCA

(E) shaishav@sdmca.in

Highlights of Economic Reforms announced by our FM

As all are aware the Indian Economy is facing a slow-down. There is a fear of unemployment on a large scale in private sector. There was a pressure on government to come with relief measures to save the economy and depressed capital market.  Finance Minister Mrs. Sitharaman announced certain measures to revive economy and capital market. She has also assured further measures in a short-while to stimulate economy.  The following is the summary of measures announced by the Finance Minister on 23^rd August 2019:

1. Income Tax:

• Enhanced surcharge levied on short term and long term capital gain as announced in recent budget has been withdrawn. The withdrawal of surcharge applies to capital gain arising from equity shares/unit referred to in Section 111A and 112A.
• To mitigate with complaints of harassment of taxpayer on account of issue of notices summons order and other correspondence by Income Tax authority, it has now been announced that on or after 1^st October 2019 all notices summons orders etc. issued by the Income tax department shall only be issued through a centralized computer system. All such documents shall contain a computer generated Unique Document Identification Number. Any communication issued without such identification number shall be invalid in Law. Old notices issued before 1^st October shall either been disposed of or shall be uploaded again through centralized computer system. Also, all notices issued after 1^st October 2019 shall be disposed of within 3 months from the date of reply by the assesse.
• Angel Tax provisions under Section 56(2)(viib) of the Income Tax Act shall not be applicable to all startup units registered with DPIIT. For quick disposal of Income Tax issues faced by startup unit a specific cell shall be started under a member of CBDT.
• An additional depreciation of 15 % shall be allowed on all vehicles acquired during the period from now to 31^st March 2020 (a total of 30% depreciation shall be allowed on such vehicles).

2. Banking:

     In order to infuse funds in the banking system, following measures have been announced:

• Government shall immediately release Rs. 70,000 crores to public sector banks by Means of Capital. Further additional liquidity to the tune of Rs. 5,00,000 crores shall also be provided to public sector bank over a period of time. This measure is going to benefit immensely to all small borrowers, small and medium enterprises and corporate houses. The idea of infusing fund appears to be for making easy credit facility available to all segment of economy.
• Bank shall directly link repo rate to interest rate. This means any such rate cuts shall result in reduced EMI for all types of loan including vehicle loan, housing loan etc. This measure would also result in availability of working capital at a cheaper rate of interest.
• One time settlement of loans and credit facility shall be easier. The OTS shall depend on certain specific criteria to be complied with by borrowers. This policy change is going to benefit MSE and small borrowers. Also the system of OTS would now be more transparent.
• The banking customer would now be able to track the status of their all kinds of loan applications online. The customers would also be able to track renewal enhancement of limits, etc.
• In order to protect honest decision making by banking officials in the commercial matters, it has been specified that internal advisory committee shall classify cases as vigilant and non-vigilant.
• It is made mandatory by public sector bank to return loan documents belonging to borrowers within a period of 15 days of closure of loan.

3. Non-Banking Finance Companies (NBFC):

    A number of welcome measures are announced to infuse liquidity in NBFC and HFC (Housing Finance Companies)

• National Housing Board (NHB) would release additional liquidity to the tune of Rs. 20,000/- crores to HFC. This should enable more credit for purchase of houses.
• From now onwards, prepayment notices issued to NBFC are to be monitored by banks.
• To prevent repeated procedure, NBFC are now authorized to issue Aadhar authenticated Bank KYC. This would enable easy approach to consumer by NBFC.
• The public sector banks shall now make fast-track collaboration with NBFCs for loans to small traders, self-employed people and MSMEs. All the above measure would ensure more liquidity support for purchase of consumer goods, vehicle, houses etc. by small and retail borrowers.

4. GST:

    Following provisions are announced in GST:

• All pending GST refund to MSMEs shall be paid within 30 days. All GST refund arising in future shall be paid within 60 days from the date of application.
• Bill discounting facility by PSB shall be made easily available for MSMEs which are registered in GSTN system.
• From now onwards, all GST return filing procedures shall be simplified.

5. Other Measures:

• In respect of listed companies NBFC and HFC, the requirement of creation of Debenture Redemption Reserve fund has been removed.
• In respect of companies focus shall be on monetary penalties. Not fulfilling CSR shall be a civil offence and not a criminal one.
• For credit enhancement to infrastructure sector, Government is proposing to establish a specific organization.
• To enable Indian Companies to have easy and increased access to foreign funds through ADR / GDR, The Depository Receipt Scheme 2014 shall be soon made operational By SEBI.
• Aadhar based KYC shall be permitted for opening Demat account and making investment in mutual fund. This step would benefit retail and small investor to have easy market access.
• KYC procedure is simplified for FPIs.
• It is proposed to permit trading of USD- INR Derivatives in GIFT, ISFC.
• The higher one time registration fee on vehicle is deferred till the month of June 2020.
• The ban on purchase by Government of new vehicles for replacing old vehicles shall be lifted shortly. Both electric and internal combustion vehicle shall continue to be registered.
• From now onwards, delayed payment from Government department shall be closely monitored by department of expenditure.
• Bond market in India shall be deepened.

The forgoing was a summary of certain important measures taken by Government to face the problem of economic slow-down. The FM has further promised stimulus measures to be announced shortly in this regard. The measures if implemented properly shall definitely put the Indian economy in upper gear.

Shaishav Mehta (FCA)

(M) 9727595108

S. D. Mehta & Co.

Chartered Accountants