Budgets have the power to usher sectoral and industry level push and reinvigoration that is needed from time to time. Especially in the current post- pandemic context the economy is in need of such a ray of hope after all the downward spiral in the GDP numbers that the country has witnessed in the last few quarters. There had been great expectation from India Inc. and specifically within the Startup community from the Budget presented on February 1, 2021 by Finance Minister Nirmala Sitaraman. While industry has welcomed the proposals however there have also been some concerns that more could have been done. Here we try to evaluate finally what has been promised by the FM specially in connection with the startup ecosystem of the country.
One Person Company
Earlier NRIs had to find a partner in India, to incorporate a company because – to float a private limited company there was a mandatory requirement to have a minimum two directors. However, with the new budget proposal the FM has made way for NRIs to incorporate companies in India independently and thus boosting the ease of doing business in India. Coupled with this is the facility to convert the One Person Company to a Private or Public Ltd. company in future as and when the company scales up. Primarily this is to encourage foreign entrepreneurs to set up businesses in India.
Tax Holiday and Capital Gains Exemption tax
The Finance Minister has also proposed a complete tax holiday until March 31, 2022 and also capital gains tax exemption also until the same date for all startups. This is being done keeping in perspective the onslaught of the recent pandemic which has been harsh on the startups landscape. However, there have been some voices in the industry that these exemptions are for a short duration and had they been for at least 4-5 years they would have augured well for the startups who need a longer duration for recovery and stabilization.
Paid up capital requirement
Also the definition of Small Companies is proposed to undergo a change. The Paid up capital threshold for definition of small companies per Companies Act, 2013 is to be changed from ‘not exceeding 50 Lakh’ to ‘not exceeding 2 Crores’ and turnover threshold is to be changed from ‘not exceeding 2 Crore’ to ‘not exceeding 20 Crore’. This move is likely to benefit more than three lakh companies and reduce their requirement for mandatory filings and other regulatory compliances.
Digital payments push
Taking a cue from the recent pandemic and the explosion in digital payments the government is planning to set up a ₹ 1500 crore fund to support fintech startups operating in the area of digital transactions. This is also to enhance the penetration of digital transactions to at least 6000 crore transactions and 20% of approximately 6 lakh crore transactions made on a daily basis in India.
MCA 21 3.0 portal
MCA portal is the one stop platform of the Ministry of Corporate Affairs for all regulatory filings for startups. For ease of doing business and to make compliance and data filing frictionless FM has proposed to leverage Data Analytics, Machine learning and Artificial Intelligence in the new version of the MCA portal which would be rolled out shortly. MCA 21 3.0 portal will have an integrated database at the backend which will have features like auto fill of known details so as to help the customers with reduced time spent on making updates. Along with this there will be provisions like e-scrutiny, e-consultation and e-adjudication as well.
Improve credit flow
To ensure that there is ample of credit available to the weaker sections of the society, the FM has proposed to reduce the margin money requirement limit from the current 25% to 15% for scheduled castes, scheduled tribes and women entrepreneurs. Margin money is the money offered by the borrower as down payment in case of credit taken from the bank.
Overall, the government seems to be serious on the front of – ease of doing business. Hence, measures like tax holiday, one person company and modification of the definition of small companies would help. However, when it comes to taking certain path breaking reforms there seems to be lack of innovative thinking. Undoubtedly, budget 2021 has to be welcomed for taking micro steps, to help and encourage the startup ecosystem in the country.