Top 9 Benefits of Timely Payment of Taxes for Small and Medium Businesses

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Favorable market conditions, coupled with higher internet usage has dynamically developed small- and medium-sized businesses (SMBs) in India. By 2027, the market value of the e-commerce industry in India is estimated to reach $200 billion and SMBs would be the largest contributors in the total revenue. The small and medium-sized enterprises account for 45% of total manufacturing output in the country and provide employment to 40% of India’s total workforce.
Thus, with the aim to ease the functioning of such businesses, the Government of India, in the recent Union Budget, lowered the corporate tax rate. According to the new provision, businesses with annual turnover of up to INR 400 crore are subjected to 25% tax rate, which was earlier applicable to businesses with annual turnover of up to INR 250 crore. Paying taxes is not only mandatory but also beneficial for anyone who earns a taxable income. Here are 10 such benefits that can be enjoyed by SMBs by the virtue of timely payment of their taxes.

1. Collateral-Free Loans From Banks

Major banks usually request a copy of recent Income Tax Returns (ITR) if any application is made for loans. ITR highlights the real picture of your income and your recent tax payments. This allows the bank to calculate your ability to repay the loan that you are applying for, based on your income profile. Thus, even if you cannot provide any guarantee, the loan request would be sanctioned. Such collateral-free loans are sanctioned under the Credit Guarantee Trust Fund Scheme of Small Industries Development Bank of India (SIDBI).

2. Reduced Interest Rates and Access to Greater Credit

Getting the needed funding to start a SMB is difficult. Studies show that about 38% of startups run out of needed money while maintaining various operational and overhead costs. Thus, loans become an important tool to overcome such financial constraints. ITR helps SMBs get higher loan amounts sanctioned or reconsidered by banks. Since ITR testifies your income profile, you can request for best-suited interest rates from banks or other lending authorities.

3. Easy Claims for Tax Refunds

ITR offers the opportunity to claim tax refunds from the Income Tax Department. Without filing an ITR, you would have to forgo the refund. On investments done through fixed deposits, tax deductions are made (TDS) at 10%. If the total taxable income of any individual is less than INR 2.50 lakh, they can claim refunds. However, this benefit can only be enjoyed if the income tax is paid on time.

4. Protection Against Delayed Payments from Buyers

Tax payments ensure protection against delayed payments. The MSMED Act declares that if any buyer refuses or delays the payment to any SMB beyond a period of 45 days from the set date of payment; penalties would be levied on the buyer. The rate of compound interest for the payment would be three times the bank rate fixed by the Reserve Bank of India. This penal interest would not be allowed as a deduction under the Income Tax Act.

5. Subsidy on Patent Registration and Industrial Promotion

As mentioned above, ITR highlights the income and expenditures. This testifies the real economic state of an enterprise. Using this as a base, SMBs can demand subsidies on patent registration and industrial promotion. New or existing SMBs require undergoing a series of registrations to ensure that their enterprise stands as a unique legal entity. If timely tax returns are filed, about 50% subsidies can be demanded in the payments made for such registrations and industrial promotion by sending an application to the respective ministry along with the ITR statement.

6. Reimbursement for ISO Certification

ISO certification is necessary for every business enterprise to become a quality-assured credible entity. The charges for ISO certification are not fixed because they are dependent on a number of variable factors. However, if an estimate were made, generally the sum would come to about INR 25,000-75,000 for a small organization. Filing taxes would help those enterprises to compensate for this out-of-pocket expense by filing for a reimbursement. The request for such reimbursements would only be considered with a copy of the ITR statement.

7. Concessions on Operational Costs

One of the simplest tax benefits for SMBs is a concession on operational costs, such as electricity bills. In order to get this concession, SMBs must submit an application to the state electricity supply board along with their ITR statement and business registration certificate.

8. Overdraft Facility Along with Interest Rate Exemption

Overdraft facility allows business owners to withdraw more money from their bank accounts than their present balance. Overdraft facilities can easily help business owners to address any urgent cash flow issues. Such facilities can only be enjoyed if the bank can assess the needed assets (FDs, shares, bonds, etc.). In order to make such assessments, the ITR statement is required by the bank officials.

9. Government e-Marketplace (GeM)

In order to register as a seller on Government e-Marketplace, SMBs must submit their ITR statements. The different benefits of this reliable and transparent marketplace can only be availed if the returns are in line with the government policies.


Thus, timely tax payment is not just a service to the country but also an effective business tool to flourish your business by enjoying various benefits that timely tax payments bring. For every business owner, irrespective of their nature of work and market size, tax payment should be a priority and not just a government-defined obligation.
Benefits of Timely Payment of Taxes for Small and Medium Businesses
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