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

Updated: Feb 01, 2021 7:50 PM

Union Budget 2021 India: While most of the compliance cost issues faced by startups are around GST, it was heartening to note that the FM acknowledged and assured the House that corrective measures will be taken to smoothen the GST and remove anomalies and inverted duty structures.

Budget 2021-22, Union Budget 2021The new provision to incentivize the incorporation of One Person Companies is also a welcome move that will boost innovation and entrepreneurial spirit.
  • By Rameesh Kailasam

Indian Union Budget 2021-22: The Finance Minister presented the Union Budget 2021 amidst huge expectations from the industry, startups, and the salaried, considering 2020 was a year of new taxes and overall economic gloom. The government on its part worked equally with its back to the wall considering economic activity was significantly low in 2020 and so were revenues in a year adversely complimented by pressures at the borders, pandemic challenges, vaccines, etc. all of which come with huge costs.

While India’s aspirations to be a $5 trillion economy took a temporary back seat, its growth trajectory is still critical and depends largely on how we handle our startups and emerging unicorns. While all announcements and initiatives of the government have been statesman like, the relaxations that the industry wholeheartedly expected still fell short as the mood was clearly to hear big compliance relaxations and reforms around Ease of Doing Business.

While the government announced IPO for LIC, enabling mechanisms were expected by Indian startups on listing in India and wealth creation including ESOP tax relaxations. While most of the compliance cost issues faced by startups are around GST, it was heartening to note that the FM acknowledged and assured the House that corrective measures will be taken to smoothen the GST and remove anomalies and inverted duty structures. A quicker decision making and implementation plan here can perhaps bring significant relief to a large number of startups across different industries.

Also read: Budget 2021 eases startup funding; FM extends eligibility for claiming tax holiday, capital gains exemption

While the Finance Minister spoke of incentivizing digital transactions, provisions like section 194(O), 206(C), etc., introduced in the last year budget continue to conflict and affect the ease of doing business besides creating a level playing field imbalance. The individual taxpayers and employees of startups were holding great expectations for clarity on ESOP taxation, tax rate cuts as well as innovative tax allowances that could have boosted consumption all of which could not make it into the budget.

Nirmala Sitharaman, however, did make a few notable announcements that benefit the startup ecosystem like section 80-IAC providing 100 per cent deduction on profits for certain type startups which however still come with terms and conditions on eligibility. The new provision to incentivize the incorporation of One Person Companies (OPCs) is also a welcome move that will boost innovation and entrepreneurial spirit. Overall the startup eco-system expected more and pins its hopes on GST relaxations next, no new taxes, and maybe sop announcements during the year.

Rameesh Kailasam is CEO at IndiaTech.org — an industry association for Founders of Indian Internet-based startups, unicorns, and investors. Views expressed are the author’s own.

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