In a move that is likely to benefit startups and innovators, the government on Monday announced that it proposes to incentivise incorporation of ‘one person companies’ (OPCs). "This will be a big boost for startups," Finance Minister (FM) Nirmala Sitharaman said on Monday while presenting the Union Budget. The FM said that incorporation of OPCs will be incentivised by allowing such companies "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 also allow Non-Resident Indians (NRIs) to incorporate OPCs in India.”
In order to incentivise startups in the country, the government has proposed to extend the eligibility for claiming tax holiday for startups by one more year — till March 31, 2022. “Further, in order to incentivise funding of the startups, I propose to extend the capital gains exemption for investment in startups by one more year — till 31st March, 2022,” the FM announced.
Reacting to the budget, Nimesh Kampani, President, LetsVenture Plus said, “The government has opened more channels of investments in India by providing incentives for setting up one-person-companies, allowing NRIs to incorporate one-person companies and reducing the residency time to 120 days. This move will provide a wider spectrum for the startup community to work around. Tax holiday and capital gain exemption getting extended by another year, will also help start ups recover from the pandemic situation, though the number of startups that will benefit from this remains small due to the IMB certification requirements. The INR 1500 cr allocation to digital payments and extending social security benefits to gig workers were other good measures targeted at startups.”
However, he added that while the budget did give a push to the startup ecosystem, issues around Section 80 IAC exemptions for ESOPs and the issue around capital gains tax rate parity for sale of listed and unlisted shares needs to be addressed in the near future.
The government’s decision to bring in institutional investors to invest in startups is a positive move and will help encourage more investment into the start-up community, said Joji George, Co-Founder, Gonuts, adding, “Government has doubled its expenditure allocation towards micro small and medium enterprises to Rs 15,700 crore in FY22. This is an excellent move for companies like us that work with large number of MSMEs.”
“In the near future, we would want the FM to give a concrete plan on ESOP taxation and hope that the initial deliberation of a 5-year term to pay tax on ESOP is implemented and there is a rationalisation,” he said.
Ravish Naresh, Co-founder and CEO, Khatabook said that the Union Budget 2021 has announced a series of initiatives to boost the MSME, startup, and digital ecosystem. “The proposed allocation of Rs 1,500 crore to incentivise and promote digital modes of payment will lend the industry a major thrust and add to the acceleration of digital adoption in the country,” he added.
The Union government announced tax relief for startups in the previous budget also as part of its efforts to boost the ecosystem in the country. The Finance Minister last year also announced a five-year tax holiday on employee stock ownership plan (ESOPs) for startups.
Outlining the steps taken to support the MSME sector, the FM said Rs 15,700 crore has been provided to this sector, which is more than double of 2019-20’s BE (budget estimate).
“MSMEs and other user industries have been severely hit by a recent sharp rise in iron and steel prices. Therefore, we are reducing Customs duty uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels. To provide relief to metal recyclers, mostly MSMEs, I am exempting duty on steel scrap for a period up to 31st March, 2022,” the FM announced.
With agency inputs