With the union budget presented in the Parliament on Monday, India officially enters a year which is going to be a watershed year in terms of the history of Indian Economy. For starters, it is one of those years, where we are entering a financial year with the economy under contraction due to the pandemic, says Praveen Sinha Jabong Co Founder. This poses a big challenge for all the stakeholders involved in the startup ecosystem be it investors, founders, employees and even the policy makers who are expected to provide relief from the pain the sector has gone through over the last 12 months, added Praveen Sinha.
What does Budget 21 have for Indian Startups?
- Easing of operational requirements and incentivisation of OPCs: OPCs can now be formed “without any restrictions” on paid-up capital and turnover, enabling their conversion into any other type of company at any time and reducing residency limit for an Indian citizen to set up an OPC from 182 days to 120 days. NRIs will also be allowed to set up OPCs under this new provision.
Nangia Andersen partner Sandeep Jhunjhunwala, feels that this move will help incentivise foreign entrepreneurs to set up their companies in India.
- Tax Holiday: The Government has also sought to extend eligibility for claiming tax holiday for startups till March 31st, 2022.
- Capital Gains Exemption: The Government has also provided for an extension upto March 31st, 2022 for capital gains exemption on investments made towards startups, a move which should help startups acquire private funding, feels Praveen Sinha Jabong Co Founder.
However, there are industry insiders who feel that these tax exemptions are not benefiting the majority of the industry, as the expectation was for a financial boost rather than a tax incentive. A industry source said that since most startups make next to no profit for the first 5-8 years and actually spend through the roof in areas like operations and marketing, a tax holiday will serve absolutely no purpose in empowering entrepreneurs who are finding it difficult to sustain themselves during the pandemic. There was also a demand for better ‘ease of business’ terms, lower compliance requirements and provision for single window clearances, which have not been addressed in the budget.
Conclusion
The government has shown interest in launching a fintech hub at GIFT-IFSC, which should help promote innovation, help firms access resources in terms of finances and go global. This will help promote a healthy environment that will be conducive for the growth of the ecosystem. With NRIs and foreign nationals being incentivised to form companies without much hassles in India, I expect the startup ecosystem to see more individuals entering the space in the coming financial year as the market will present new opportunities, added Praveen Sinha.
