Whats there for Startups? (Budget 2021-22)

After a series of Mini Covid Budgets announced during the last year, FM Mam finally presented Annual Budget for 2021-22 recently & yet another never ending debate started - "What's there for Startups"??

Somebody has already said this- "Expectations hurt". Still, we (intellectual creatures) can't help but expect. And why don't we expect, after all, we are going to play the most crucial role in achieving the dream of 5 Trillion Dollar Economy. So, we have the Right to Expect.

But again, our expectations were not met, be it regarding Taxability of ESOPs, Ease in approval for IMB Certificate for Income tax exemption or other compliance processes. Having said that, a multiple changes have been made which will be another step towards growth of startup ecosystem definitely. So, without opining on what could be done, detailing here the Key Highlights of What's there for startups-

1.    Incentivizing OPC setup

§ Indian citizens staying in India for 120 days (instead of 182 days) will be able to set up one-person companies.

§ Non-resident Indians will be permitted to incorporate one-person companies.

§ The requirement for OPC to compulsorily convert to either a private company or public company, where the paid-up share capital exceeded Rs 50 lakh or turnover exceeded Rs 2 crore in three years preceding consecutive years has been removed.

§  the paid-up capital threshold has been increased from Rs 50 lakhs to Rs 2 crore and the turnover threshold has been increased from Rs 2 crore to Rs 20 crore.

2.    Tax Holiday for one more year

 § Income Tax Act, provided a 100 percent deduction of the profits derived from an eligible business by an eligible startup for 3 consecutive years out of 10 years, incorporated before 1 April, 2021.

§ Now, the benefit of 100 percent deduction of profits can be claimed by eligible startup incorporated upto 1 April, 2022.

 3.    Capital gain exemption for investment in startups for one more year

 § Eligibility period for claiming capital gains exemption for investment in start-ups has been extended by one more year. The cut-off date now is March 31, 2022.

§ In other words, the taxpayer could make investments in eligible startups in respect of the transfer of residential property undertaken anytime on or before March 31, 2022. This will act as a boost for investments in startups during these difficult times and will augment their growth and expansion.

4.    Digital Payments Boost

§ Earmarking Rs 1,500 crores for a proposed scheme “that will provide financial incentive to promote digital modes of payment.”

 5.    Dispute Resolution Committee (DRC)

 § For providing an opportunity to small taxpayers to settle long-pending disputes and be relieved of further strain on their time and resources, a DRC is proposed to be set up.

§ DRC shall be faceless to ensure efficiency, transparency and accountability.

§ Only disputes where the returned income is not more than Rs 50 lakhs (if there is a return) and the aggregate amount of variation proposed in a specified order (order) is not more than Rs 10 lakhs shall be eligible to be considered by the DRC.

 6.    Time limit for assessment and re-assessment reduced

 § Time-limit for re-opening of assessment is proposed to be reduced to 3 years from the existing 6 years from the end of the relevant assessment year. 

§ Re-opening of assessment up to 10 years will be only allowed where there is evidence of undisclosed income of Rs 50 lakhs or more for a year.

 7.    Tax Audit limit increased

 § The limit of tax audit has been increased from INR 5 crore to INR 10 Crore for those who carry out 95% of their payments through digital transactions.

 8.   Fintech hub in GIFT City

 § The aim is to “support the development of a world-class fintech hub” at GIFT City that’s designed to double up as a multi-service finance hub in Gujarat.

 9.    Change in Labour Laws

 §  Compliance burden for employers is proposed to be reduced by introducing single registration, single licensing and online returns.

§ A portal would be launched which will collect relevant information on gig, building and construction workers.

§ The four Labour Codes will be implemented.

§ Social Security benefits would be extended to gig and platform workers.

§ Minimum wages will apply to all categories of workers.

§ All categories of workers would be covered by the Employees State Insurance Corporation.

§ Women will be allowed to work in all categories and also in the night-shifts with adequate protection.

§ Late deposit of employees’ contribution by the employer shall not be allowed as deduction to the employer

10. Other Key Changes

 § FDI in insurance increased from 49% to 74%. Foreign ownership and control is permitted with certain safeguards. Majority of directors to be Indian and 50% of directors to be independent directors.

§ Tax would be deducted on dividend income at lower treaty rate for foreign portfolio investors.

§ Dividend payment for foreign companies would be exempted from levy of Minimum Alternate Tax (MAT) if the applicable tax rate is less than the rate of MAT.

§ An investor charter would be introduced containing the rights of all financial investors across all financial products.

§ Proposed to simplify GST further.

Regards