Budget 2021: Here’s everything for startups and MSMEs FM Sitharaman announced in the first digital budget

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Updated: February 01, 2021 7:54 PM

Union Budget 2021 India: To boost startup investments in the country, the budget proposed an extension of eligibility for claiming tax holidays for startups along with the capital gains exemption for investment in startups till March 31, 2022, to incentivise funding.

Budget 2021-22, Union Budget 2021The budget allocated Rs 15,700 crores to the MSME sector.

Indian Union Budget 2021-22: Finance Minister Nirmala Sitharaman in her third budget speech on Monday announced a handful of measures to boost the startup and MSME ecosystems that were seeking game-changing reforms to accelerate their growth back to the pre-Covid era and leverage the Covid-induced tailwinds for digital growth. The announcements in the post-pandemic and the first digital budget ever largely catered to small businesses with respect to ease of doing businesses, insolvency process, even as it relaxed norms around setting up businesses and incentivising funding for startups. Below is the rundown of what all Sitharaman offered to startups and MSMEs in the budget:

Incentivising OPC Setup: In order to benefit startups in setting up one person companies (OPCs), Sitharaman announced OPCs to grow without any restrictions on paid-up capital and turnover. The Minister also allowed their conversion into any other type of company at any time and reduced the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow NRIs to incorporate OPCs in India. 

Extending Tax Holiday: To boost startup investments in the country, the budget proposed an extension of eligibility for claiming tax holidays for startups along with the capital gains exemption for investment in startups till March 31, 2022, to incentivise funding. 

Digital Payments Boost: Sitharaman announced earmarking Rs 1,500 crores for a proposed scheme “that will provide financial incentive to promote digital modes of payment.”

Insolvency Resolution: In order to ensure faster resolution of cases, Sitharaman said that the National Company Law Tribunal (NCLT) framework will be strengthened, the e-courts system will be implemented, and alternate methods of debt resolution and special framework for MSMEs will be introduced.

Also read: ‘Budget 2021 startup relaxations fell short as mood was to hear big compliance, business reforms’

Budgetary Allocation: The budget allocated Rs 15,700 crores to the MSME sector, more than double from Rs 7,572 crore from the preceding budget. 

Customs Duty Slashed: The government said that it is reducing Customs duty uniformly to 7.5 per cent on semis, flat, and long products of non-alloy, alloy, and stainless steels to help MSMEs and other user industries that have been severely hit by a recent jump in iron and steel prices. Sitharaman also announced exempting duty on steel scrap for a period up to 31st March, 2022 to provide relief to metal recyclers, mostly which are MSMEs. The minister also proposed an increase in duty from 10 per cent to 15 per cent on steel screws and plastic builder wares to benefit MSMEs. 

Withdrawing Exemption on Imports: The budget announced withdrawing exemption on imports of ‘certain’ kind of leathers as they are domestically produced in good quantity and quality, mostly by MSMEs, according to Sitharaman. 

Revising Definition: FM Sitharaman proposed a revision in the definition of small companies in the budget by increasing thresholds for paid-up capital from Rs 50 lakh to Rs 2 crore and turnover from Rs 2 crore to Rs 20 crore. “This will benefit more than two lakh companies in easing their compliance requirements,” the minister said.

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