Impact Of Budget 2021 On Startups

Sakshi Jain
Sakshi Jain at March 25, 2023

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How Budget 2021 Affects Startups

The Union Budget 2021 focused on India’s digital transformation. This Budget aimed to take our country to the next economic level after the hit endured because of the Covid-19 induced recession. One of the focus points of the Budget was the Startups. In this article, we will briefly spell out the prominent startup-related proposals presented in the Union Budget of 2021:

Tax Holiday For Startups

  • Apart from a new definition for small businesses, the finance minister also proposed to give an added extension for a year to the tax holiday already provided to startups. That means this tax holiday would last till 31 March 2022.
  • She further proposed to allow capital gain exemptions to anyone who invests in a startup for one year.

Note: This benefit is in addition to the (three out of seven years) tax holiday the startups would get (from the date of incorporation) if the annual turnover is not more than INR 25 crores.

Insurtech Gets A Boost

The Union Budget 2021 proposed amendments to the Insurance Act of 1938 and increased the permissible foreign direct investment limit (FDI) from 49% to 74%. From now on. Insurance Companies can be owned and controlled by foreign investors with some amount of safeguard. This was done with an aim to provide insurance benefits to a more extensive section of the Indian population.

Focus On Fintech

The Government of India has proposed allocating INR 1,500 crores to incorporate digital payments and support other related measures to boost the financial inclusions. The FM has also recommended setting up a world-class hub for FinTech near Gandhinagar, the capital of Gujarat.

Reduced Compliances For Startups

  • The FM has proposed revisions in the Companies Act 2013 to benefit small businesses. The definition of ‘Small Businesses’ may be amended as follows:
    • The threshold for capital requirements will be changed to INR 2 crores (from INR 50 lakhs).
    • The turnover threshold will be modified to INR 20 crores (previously INR 2 crores). Experts believe that this change would help over 200K companies by easing their compliance requirements. Several startups will now be considered small companies and will enjoy all the benefits that this entails. For example, these companies will be required to hold only two board meetings in a year while the others are needed to conduct at least four meetings in a year.
  • The FM has also suggested the use of data analytics, machine learning, and artificial intelligence to make the regulatory filings frictionless.
  • The government is considering the introduction of artificial intelligence-based features in MCA-21 when they roll out the portal’s version 3.0.

Incentives For One-Person Companies

  • Removal of several regulatory requirements on One-Persons companies is proposed. OPCs can convert into a Public/Private company anytime with no restrictions. This will help a lot of businesses scale up and grow substantially.
  • Previously, NRIs were not allowed to incorporate OPCs. Henceforth, any person who is an Indian citizen can form an OPC.
  • The residency period for NRIs, in this case, is reduced to 120 days from 182 days.
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