Indian engineering exporters are urging the government to consider a reduction in income tax rates for non-corporate manufacturing MSMEs to 25%. Additionally, they are requesting the expedited release of most pending goods and services tax refunds. These measures are seen as vital for alleviating cash flow pressures and enhancing export competitiveness in the upcoming Union Budget for 2026.
The Engineering Export Promotion Council of India (EEPC India) mentioned that the lower income tax shall bring partnerships, limited liability partnerships, and sole proprietorships at par with private limited companies, while quicker GST refunds would support sustaining export functions by enhancing liquidity.
The apex engineering exports body, in its budget suggestions, proposed the immediate release of 90 per cent of GST refunds, with the balance paid after verification. It cited that late refunds often stress working capital for small manufacturers that rely heavily on exports.
EEPC India called for permitting 100% depreciation on rooftop solar investments by manufacturing MSMEs, compared with the current 20%, to help firms cut power costs and fulfil sustainability goals.
“Targeted tax reforms and policy actions would support the engineering goods sector, which is one of the largest labour-intensive industries and a key forex earner,” Pankaj Chadha, chairman of EEPC India, cited.
Chadha cited that the council had asked to lower the income tax rate to 25% for manufacturing MSMEs operating as partnerships, LLPs, or sole proprietorships, bringing them in line with private limited companies. Also, he cited that releasing 90% of GST refunds shall deliver faster relief to exporters, with the remaining 10% paid after checks.
Currently, non-corporate manufacturing MSMEs are subjected to an income tax rate of almost 33 per cent, which includes surcharges and cess, resulting in an 8- to 9-percentage-point disadvantage relative to corporate entities, as mentioned by EEPC India.
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The council identified rooftop solar as the most effective climate solution for small manufacturers in terms of sustainability. Permitting complete depreciation shall incentivise the adoption of green energy, reduce electricity costs, and lower the carbon footprint of MSMEs, Chadha mentioned.