The Union Budget 2021 was promised to be a “never seen before” budget, especially because it is the first Budget since the pandemic pushed down the global economy. Coming to the announcements, Finance Minister, Nirmala Sitharaman announced a Rs 1,500 crore scheme to steer Indians towards adopting digital payments. This announcement caught my attention, especially since India saw an 80 per cent rise in digital payments in 2020.
The fact that this spike came largely from tier 2 and tier 3 cities means this scheme will lead to developing alternatives to the Zero MDR policy and initiatives towards bringing digital financial literacy in vernacular languages. These will instill trust in the system and accelerate adoption by entrepreneurs who are apprehensive towards moving money digitally. Aiding MSMEs in this direction will be the allocation of `15,700 crore which was doubled from the last year’s budget.
There was a lot of other good news for start-ups and small businesses in this year’s Budget. One of the biggest announcements for start-ups was the advancement in the eligibility of claiming tax holiday for start-ups for one more year till March 31, 2022. Further, the FM also extended the capital gains exemption available for investments in start-ups till March 2022. I believe these measures will help revive the start-up ecosystem of the country.
Under Section 80-IAC of the Income Tax Act, start-ups recognised under the Department of Industrial Policy and Promotion (DIPP) are eligible to apply for a full deduction on profits and gains from business The extension of this benefit by another year will facilitate start-ups to reinvest their profits into their business, helping them expand further in employment and vitality in the ecosystem. Extension of capital gains exemption will attract more funding for startups.
A crucial announcement for businesses was the revision of the definition of “small companies” under the Companies Act 2013. The revised definition increases their limit for paid-up capital from not exceeding
`50 lakh to not exceeding `2 crore and turnover from not exceeding `2 crore to not exceeding `20 crore.
The FM further added that two lakh businesses would benefit from this revision. With this change, more firms would qualify as “small companies” and their compliance requirements will plummet.
This will help small firms focus on their business without having to worry about tasks like board meetings, auditor rotation and penalties, among others. Another announcement I was particularly excited about was regarding the government allowing the incorporation of One Person Companies (OPC) with no stipulations on paid-up capital and turnover. The fact that NRIs will also be allowed to incorporate OPCs in India, will propel entrepreneurship in the country.
Overall, while the 2021 Budget might not have something for everyone, it had enough to propel the sectors that are, and will continue to, help India fight the COVID-19 pandemic. Through all of 2020, the government has done quite a bit to revive small businesses and drive the adoption of digital payments, which have been a savior in the times of crises. I’m hoping this trend continues in 2021 as well. More “mini Budgets” will surely help fuel the digital economy of India.
Shashank Kumar Co-Founder & CTO, Razorpay