Presenting the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman said that the Budget proposals for this financial year rest on six pillars — health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation, and R&D, and ‘Minimum Government, Maximum Governance’.
Significant announcements included a slew of hikes in customs duty to benefit Make in India, a proposal to disinvest two more PSBs and a general insurance company, and numerous infrastructure pledges to poll-bound States. The fiscal deficit stands at 9.5% of the GDP and is estimated to be 6.8% in 2021-22. Personal income tax slabs remain as is.
Here is what we deduced from the points from Union Budget 2021-22 that will directly or indirectly affect the startup ecosystem in India.
Tax Holiday For Startups Extended Till March 2022
FM Nirmala Sitharaman announced the extension of tax holidays for startups by one year until March 2022. The minister also announced extending capital gains tax exemption by one year. The government has also proposed to incentivize the incorporation of one-person companies (OPCs). The move is likely to help smaller startups and innovators. The government plans to incentivize these OPCs by allowing them “to grow without restriction on paid-up capital and turnover, allowing conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days, and allow also non-resident Indians to incorporate OPCs in India.”
Government To Set Aside INR 3,800 Cr For First Digital Census
Mrs. Sitharaman has announced to set aside INR 3,768 crores to conduct the census digitally this year. This would mark India’s first digital census, she quoted. Amit Shah, back in 2019, announced that the census of 2021 will be conducted through a mobile app. Though the Finance Minister did not further elaborate on the upcoming digital census, Shah had previously noted that the exercise will be carried out in 16 languages. He further said that the help in future planning of the country, especially for development initiatives and welfare schemes through people’s participation.
New Definition Of Small Companies For Startups
Finance minister Sitharaman has proposed to revise the definition under the Companies Act, 2013 for small companies by increasing their threshold for capitalization from not exceeding INR 50 Lakh to not exceeding INR 2 Cr and turnover from not exceeding INR 2 Cr to not exceeding INR 20 Cr. Small companies enjoy certain benefits over other companies in terms of compliance requirements. For instance, a small company needs to hold only two board meetings in a year, unlike other companies that are required to hold four such meetings in the same period. Small companies are not required to maintain their cash flow statement and their annual returns could simply be signed by simply a company secretary or a single director. These companies are also not required to change their auditor under Section 139(2) which is mandatory for other companies.
MCA-21 3.0 Portal To Reduce Compliance Burden On Startups With AI, ML Tech
Nirmala Sitharaman has proposed to use data analytics, artificial intelligence, machine learning to make regulatory filings more frictionless for businesses and startups in a revamp of the ministry of corporate affairs (MCA) portal. In May 2019, the MCA announced plans to introduce AI in the MCA-21 portal, currently being used by companies. Among other things, the usage of AI, ML, and data analytics will ensure no one is required to fill in known details again and also interlink databases. The MCA-21 3.0 is expected to have features such as a single source of truth, ease of doing business, e-adjudication, online compliance monitoring, among others.
Social Security Policy For Gig Workers, Food Delivery Partners, Cab Drivers
Finance Minister announced the extension of social security benefits to gig and platform workers, which include food delivery workers and cab drivers with companies such as Swiggy, Zomato, Ola, and Uber. The minister talked about the implementation of four labor codes, uniform implementation of the minimum wage for workers across categories, including gig and platform workers as well as migrant workers. The government also mandated aggregators engaging the services of gig workers, to dedicate 1-2% of their annual turnover or 5% of the wages paid to gig workers, whichever is lower, to social security benefits for these workers.
New Measures To Tackle Lending NPAs; Gujarat’s GIFT City To Get Fintech Hub
Nirmala Sitharaman proposed to set up a “world-class” fintech hub near Gujarat capital Gandhinagar at GIFT City (Gujarat International Finance Tec-City). Located on the back of the Sabarmati river, GIFT City is a planned business district that connects Ahmedabad and Gandhinagar. According to its website, the district is equipped with the latest technology and global best practices in infrastructure service delivery to offer international working and living standards. It also consists of a conducive multi-service special economic zone (SEZ) and an exclusive domestic area, along with India’s first International Financial Services Centre (IFSC).
Image Credits: Moneycontrol