Budget 2021 fires startup dreams

To give a boost to its startup economy, India proposed to extend the tax holiday claim for these companies for another year as well as incentivise one person companies (OPCs) in the budget presented on Monday, February 1.

Indian startups have had a mixed 2020. While there were a dozen new unicorns last year, reports suggest that the country recorded a fall in the number of new startups that were registered. Reports also say that Indian startups raised less than $10 billion last year, lowest since 2016. However, industry body NASSCOM points out that investor sentiment increased in the second half of 2020, with a 90% jump in funding activity compared to the first half. The trade association also sees the startup base expanding at a steady 8%-10%.

Finance minister Nirmala Sitharaman’s announcements were welcomed by the startup community and they are believed to provide some relief to the sector during a pandemic.

The extension of tax holiday “is much needed for the growth and recovery of startups, in the wake of Covid recovery. This will help the startups in getting back their confidence,” says Prateek Mehta, co-founder and chief business officer of digital wealth management service, Scripbox.

In other important announcements for startups, the finance minister revised the definition of small companies and increased their threshold for paid up capital to ₹2 crore and turnover to ₹20 crore in order to ease compliance requirements. She also proposed to extend the eligibility period of claiming capital gains exemption for startup investments by one more year.

Sitharaman said OPCs will have no restrictions on paid-up capital and turnover. They will also be able to convert into any other type of company at any time. The residency limit for an Indian citizen to set up an OPC has been reduced to 120 days from 182 days; India will also allow the setting up of OPCs by NRIs.

“Reducing residency requirements for founders will allow talent to flow and will boost the startup ecosystem,” tweeted snapdeal CEO and co-founder Kunal Bahl.

The industry also welcomed the government’s move to collect relevant information on gig, building, and construction-workers, as well as extend social security to gig and platform workers. “Minimum wages will apply to all categories of workers, and they will all 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,” the finance minister said in her speech.

Abhiraj Bhal, co-founder, Urban Company, pointed out that this move would greatly improve ease of doing business in India. “This is a welcome move and takes forward measures outlined in the Social Security Code approved by the Parliament last year,” he says.