Implications of Budget 2021 for India’s Entrepreneurs | AU Small Finance Bank
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Implications of Budget 2021 for India’s Entrepreneurs

    To boost startup investments in the country, the government has proposed a budget to support and facilitate an economic reset. This Budget provides every opportunity for MSMEs to raise and capture the pace it needs for sustainable growth.
    At a time when most businesses are trying hard to recover from the adverse impact of the coronavirus pandemic, the government has done its bit to revive the ecosystem for startups and micro, small and medium enterprises (MSMEs).
    In the Union Budget 2021-22 presented earlier this month, Finance Minister Smt. Nirmala Sitharaman has made fundraising easier for startups by allowing capital gains exemption till March 31, 2022. In simple terms, capital gains exemption means that startups will get an exemption from paying tax on any capital gains if it is invested in a fund notified by the government. Besides this, we have listed some more of the Budget’s provisions for MSMEs below.

    Tax Holidays

    The government has extended the eligibility for claiming tax holidays for startups by one more year, which is expected to help such ventures raise capital during the initial years of operation. This is an important move, since under the Startup India scheme, the government had provided 100% waiver of tax on profit for startups subject to certain conditions.

    OPC Setup

    The government has also made it easier for an individual to set up one person companies (OPCs) and has even allowed it to be converted into any other form of company. It has also allowed NRIs to set up OPCs in India, and reduced the number of days that a citizen has to stay in India before setting up an OPC.

    Budget Allocation

    For the MSME sector, the Union Budget has allocated ₹15,700 crore, which has more than doubled from ₹7,572 crore allocated in the previous budget.

    Reduced Customs Duties

    The government has reduced customs duties on many items including steel scrap, semis, flat and long products of non-alloy, alloy, and stainless steels. A reduction in customs duties helps bring down production cost for MSMEs.

    Exemption of Duties

    The government has also withdrawn the exemption of duties on certain kinds of leathers that are produced in India by MSMEs. Such withdrawal would make importing such products costlier, thereby benefitting domestic MSMEs in that industry.
    Similarly, the government has also increased duty on steel screws and plastic builder wares from the current 10% to 15% that will again benefit the country’s MSMEs.

    Changing the Definition of Small Companies

    The government has proposed changing the definition of small companies by increasing thresholds for paid-up capital from ₹50 lakh to ₹2 crore and turnover from ₹2 crore to ₹20 crore. This change will benefit more than 2 lakh companies in the country, as it will make their compliance work much easier compared to the current framework.

    Digital Modes of Payment

    At a time when digital modes of payment like UPI, Google Pay and BHIM, among others, have gained immense popularity, the government has allocated ₹1,500 crore for a scheme that will provide financial incentives to promote digital modes of payment.
    The Union Budget has also announced a special framework for MSMEs in terms of faster settlement of cases at the National Company Law Tribunal (NCLT), which has been set up to look into cases related to corporate disputes, bankruptcy and closure of companies.
    Finance Minister Smt. Nirmala Sitharaman has unveiled a series of far-reaching reforms, aimed at energizing the Indian economy through a combination of short-term, medium-term and long-term measures. With much emphasis on the startup/entrepreneurship segment in this budget, the government is aiming to boost the economy through the economic empowerment of citizens in the new decade.