Indian Finance Minister Nirmala Sitharaman unveiled the Union Budget 2021 on 1 February this year. The budget has got a strong focus on digital transformation and economic growth after the market recession caused by COVID-19. Looking at the increasing focus of government on Indian Startups and SMEs on this year’s budget we can safely call the budget 2021 for small business.
In order to present this longest budget address, she used a made in India TAB this year. The focus is on the important sectors for the new-age economy. The budget also propose higher expenditure on healthcare, manufacturing, education and infrastructure employment.
Major Changes From Union Budget 2021 for Small Businesses
Finance Minister Nirmala Sitharaman declared in her third speech to the budget a handful of steps to improve MSME and start-up ecosystems looking for reforms. Essentially, these steps will speed up their development and use their COVID-driven tailwinds to achieve digital growth.
The post-pandemic and the digital budget announcements have mostly addressed issues of small enterprises. This will help in terms of business ease and the insolvency mechanism as well as easing requirements for start-up funding.
Below is the summary of what all Sitharaman has offered in the budget 2021 for small business:
1. Tax Holidays Extension for Startups
Sitharaman proposed an expansion of tax holiday for start-ups to another year during his Union Budget 2021 address. It will be now valid till March 31, 2022. Also, she announced that the Government is proposing to extend the duration of eligibility to demand an exemption from capital gains for investments made in start-ups by one more year until 31 March 2022 to promote investment in start-ups.
2. Encouragements to One-Person Company
The finance minister declared that OPCs (One Person Company) will expand without any constraints on paid-up capital and turnover. This is aimed to help start-ups while developing one-person companies. The Minister also authorized their conversion to any other form of business at any moment. It also reduced the Indian Citizen’s residency limit from 182 days to 120 days to establish the One Person Company.
3. Reducing Compliance Burden on startups
The FM also suggested that the Company Act 2013 definition be updated for small companies. This will raise their capitalization limit from INR fifty Lakh to INR two crore and turnover from INR two crore to INR twenty crore.
Under the current definition under the company act of small businesses, a significant number of start-ups are referred to as small businesses. Small companies have some advantages over other businesses in terms of regulatory requirements. For example, in comparison with other businesses that have four meetings at one time, a small enterprise would only need two board meetings in one year.
In a separate announcement that would ease the burden of enforcing start-ups, Sitharaman suggested using the study of data, artificial intelligence, and master learning, regulatory filings will be made more frictionless for companies and startups in the portal of the Ministry of Corporate Affairs (MCA). The government has suggested that the Ministry intends to include AI-based features in MCA-21 when portal version 3.0 is released.
This is important for the start-up ecosystem, as MCA-21 shares vital knowledge with different stakeholders, such as regulators, investors, and businesses. All filings under different laws can be submitted for businesses and enterprises in India on this portal.
4. Reduction of Customs Duty
The Government declared a uniform customs duties cut of half finished and long finished unalloy, alloy and stainless steel to 7.5%. This will help small and medium-sized enterprises and other user industries that have been severely affected by the recent increase in the price of iron and steel.
Sitharaman also declared an exempt duty on steel scrap. This will provide relief to metal recyclers, most of whom are MSMEs for the time up to 31 March 2022. The Minister has also indicated that the taxes on steel screws and plastic construction goods rise from 10% to 15% to support MSMEs.
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5. Quick Resolution of Insolvency
To ensure a quicker settlement of cases, Sitharaman said that the structure of the National Company Law Tribunal (NCLT) will be improved. The e-court system, alternative debt resolution methods and a separate framework would be put in place. This will further help small and medium-sized enterprises.
6. Withdrawing Exemption on Imports
According to Sitharaman, another change brought by budget 2021 for small business announced the deletion of the leather import exemption. The MSMEs manufactures leather domestically in good quantities and quality. This will further boost their business.
7. FDI booster shot for Insurtech
The plan to amend the Insurance Act of 1938 to lift the Authorized Foreign Direct Investment Cap (FDI) from 49 percent to 74 percent for insurance companies in the Union Budget 2021 was among the main decisions of the budget.
This would make the owner and control by international insurance firms with certain protections in the country. The majority of the directors in the boards of such firms and those major managers should be resident Indians. It also specifies that 50 percent of directors should be independent directors and that a certain amount of the profits should be maintained as general income.
The FM claimed that such initiatives would have a multiplier effect with sufficient private-sector funding and expenditure and would cover a wide section of the Indian population. This regulatory reform should encourage more start-ups and small companies in the industry.
8. Fintech in focus
In order to increase the penetration of digital payments and boost financial inclusion, the Indian government proposed a budget of INR 1,500 Cr. The Government will also introduce the bill on INR 20,000 Cr Development Financial Institutes. This will increase the accessibility for small businesses and MSMEs with an outlay of INR 20,000 Cr.
The government has proposed a reduction of the marginal money requirement by 25% to 15% and loans for agriculture-related activities. This will further encourage credit flow for planned castes and tribes, as well as women entrepreneurs under the Stand Up India scheme.
9. Expansion Roadmap or National Education Policy
The Minister of Finance, announced in the 2021 Union Budget that the government will extend the initiative to specific regional policy colleges in 2020. The FM also announced steps throughout the country to improve skill development initiatives.
To include various facets of national education policy, more than 15,000 schools have been qualitatively enhanced. They will help other colleges in their region and mentor them. She announced the development of 100 new Sainik Schools in collaboration with private schools, public schools, government and NGOs. This will further induce small businesses to raise in this sector.
Sitharaman confirmed that the higher education legislation will be introduced in 2021. This is after the proposals announced in the budget last year for the creation of a Commission for higher education. It will be an agency that sets standards, establishes accreditation, controls, and provides support.
Final words on budget 2021 for startups
The Economic Survey predicted GDP growth of 11 percent earlier in the fiscal year 2021-22. It remains to be seen whether key sectors have the drive to achieve this benchmark using increased government spending. In the meantime, the key goal of the Union’s 2021-21 Budget is growth for start-ups.
The government has already implemented several measures for the growth of small businesses in India. Hope this new budget 2021 for small business will further accelerate the growth of startups.
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