NEW DELHI: The Engineering Export Promotion Council of India (EEPC India) has asked for a reduction in income tax for non-corporate manufacturing micro, small and medium enterprises (MSMEs) to 25% and quicker release of goods and services tax (GST) refunds, as part of its recommendations for the Union Budget 2026.
In a representation to the government, the apex engineering exports promotion body said that lowering the income tax rate for manufacturing MSMEs would bring their tax liability on par with private limited companies. At present, non-corporate manufacturing MSMEs pay close to 33% tax, including surcharge and cess, which puts them at an 8–9 percentage point disadvantage compared with corporate entities.
Pankaj Chadha, Chairman, EEPC India, said, "We have proposed to reduce the income tax rate to 25% for manufacturing MSMEs operating as partnerships, LLPs, or sole proprietorships, bringing them on par with private limited companies. We have also suggested to release 90% of the GST refund immediately, with the remaining 10% after verification."
According to the exporters’ body, faster refunds would significantly improve liquidity for exporters, enhance their global competitiveness and help sustain export operations, particularly at a time of volatile global demand and rising input costs.
The industry body has also asked for better policy support to ensure better adoption of renewable energy by small manufacturers. “We have suggested to allow 100% depreciation on rooftop solar investments by manufacturing MSMEs, instead of the current 20%. This will incentivise adoption of green energy, lower electricity cost for MSMEs and reduce carbon footprint,” said Chadha.
Exports of engineering goods have been affected due to both US tariffs and EU’s carbon tax regulations. Engineering goods exports, which contribute nearly a quarter of India’s merchandise shipments, fell 9.4% year-on-year to the US in September, though overall exports from the sector grew 2.93%, supported by resilient demand from Europe, official data showed.
The trend reversed in October, with engineering exports declining 17% from a year earlier, prompting the industry to seek carve-outs for select stainless steel products in India’s ongoing free trade agreement talks with the European Union.