Union Budget 2021: 4 Key Takeaways For Startups

Startups will get tax incentives, including an extension in capital gains exemption by one year

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After the economy hit the rock-bottom post the pandemic-created market slowdown, India was looking up to its Finance Minister Nirmala Sitharaman with great expectations for new announcements that would help the startups in the country to get back to normal.

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With the announcement of the Union Budget 2021 by the Finance Minister, here are highlights which suggest that how startups in India will be benefitted from the current budget:

Tax Incentives: Finance Minister has extended by one more year the tax holiday for startups, which will provide a much-needed post-pandemic boost to the upstarts. This means startups will get capital gains exemption by one more year to 31 March 2022. They will also have one more year to claim tax holiday.

One-Person Companies (OPCs): FM proposed to incentivise incorporation of one-person companies, which will benefit startups and innovators. This move will allow such firms "to grow without restriction on paid-up capital and turnover, allowing conversion into any other type of company at any time, reducing residency limit for an Indian citizen to set up an OPC from 182 days to 120 days.". This will also allow non-resident Indians to incorporate OPCs in India.

Foreign Direct Investment (FDI): Finance Minister announced a proposal to amend the Insurance Act, 1938 to increase permissible foreign direct investment limit (FDI) from 49% to 74% in insurance companies. This would allow foreign ownership and control of insurance firms in the country with certain safeguards. This is a good step that will provide growth impetus to the InsurTech startups. However, majority of directors on the boards of such companies and key management persons will have to be resident Indians, with 50% directors being independent directors and a specified percentage of profits being retained as general income.

Artificial Intelligence (AI), Machine Learning: Finance Minister 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. The government had said that the ministry would look to introduce AI-based features in MCA-21 when version 3.0 of the portal is rolled out. For the startup ecosystem, this is crucial as MCA-21 shares crucial information to various stakeholders such as the regulators, investors and companies. All filings under the companies law are submitted to the ministry through this portal.

Reactions On The Budget

Union budget 2021 invoked some reactions from the industry experts and founders, here are a few quik statements:

Rishad Manekia, Founder and MD, Kairos Capital Private Limited.

 "The 2021 budget was different from those in the past not because of what had changed but because of what had stayed the same. It was a welcome surprise that there was no change in the tax slabs, no increases in surcharges and no changes in exemptions and deductions. This is a welcome change and will ensure stability and predictability to the taxpayer."

Deepak Aggarwal, Co-Founder, Moneyboxx Finance Ltd.

"The budget for 2021-22 has clearly announced some path breaking initiatives in the financial sector. The decision to set up a Development Finance Institution, increasing FDI limit in insurance to 74% and setting up of an ARC cum AMC for bad loans along with the decision to privatize a couple of public sector banks were much awaited. These measures will mean higher funding from banks. NBFC sector, which is facing a cash crunch, certainly stands to benefit from it. With Government also laying equal emphasis on rural sector and hence, have increased agriculture lending target to Rs 16.5 lakh crore, NBFCs operating in rural areas will have to play a pivotal role."

Prem Kishan Dass Gupta, Chairman & Managing Director, Gateway Distriparks Ltd.

“The Union Budget 2021-22 placed key focus on healthcare, infrastructure, digital economy and job creation for the youth.  The announcement of massive investment of Rs. 2000 crore on seven port projects under PPP mode will boost the logistics sector and enable overall economic growth. Under the Recycling Act, 2019, a recycling capacity of around 4.5 Miliion Light Displacement Tonne (LDT) will be doubled by 2024. This will not only benefit us as a company but also be a way of providing employment opportunities. 

With road and rail connectivity being an indispensable factor of the economic development, an allocation of Rs 1,10,055 crore for Railways has been made where the eastern and western dedicated freight corridors will be commissioned by June 2022. This will help in bringing down the logistics cost as well as ensure smooth connectivity between different points of country and ensure easy and faster freight movement.  The Union Budget targets 100 percent electrification of broad-gauge railways to be achieved by 2023. This will increase efficiency, and reduce dependence on conventional fuels.

 The Government’s push to port, road and rail infrastructure through various investments, initiatives and projects will further add to the development of the logistics industry in India."

V Swaminathan, CEO Andromeda & Apnapaisa

"The benefits for affordable housing in terms of exemptions is a welcome move and is likely to give this segment a boost. The recapitalisation of Public Sector Banks will give a shot in the arm to lending activities and boost expansion in business activities and consumer spending."