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How does Budget 2021 open the doors for new Startups?

With the focus on 6 main pillars – Health & Well Being, Physical and Financial capital, Inclusive Development for Aspirational India, Reinvigorating Human Capital, Innovation and R&D, Minimum Government and maximum governance, budget 2021 has also laid emphasis on accelerating and favoring the startup ecosystem in the country.

Around last year, there were an approximate 41,000 government recognized startups in India. These startups accounted for more than 4 lakh jobs encouraging employment countrywide. This made India stand high as the world’s third-largest startup ecosystem.

Among the series of announcements and declarations by the finance minister Nirmala Sitharaman, the most prominent declaration was the extension of the tax holiday for a year for the startups as an attempt to ensure and boost the startups post pandemic. The final date is now extended up to March 31, 2022. It is further proposed that the period of incorporation for the eligible startups under Section 80 IAC of the Companies Act will be extended up to April 1,2022. This announcement is coming into effect from 1 April 2021. The capital gains exemption given to the startups was also decided to be extended for a year.

To ease out the compliance for more than 2 lakh companies, the definition of small companies under Companies Act 2013 is also to be revised . Companies with paid-up share capital of 2 crore and a yearly turnover of 20 crore are considered under the umbrella of small companies. It has also favored the incentivization and incorporation of One-Person Companies thereby benefiting the startups. This facilitates the progress of the firm without any restriction on the paid-up share capital and turnover, allowing the conversion of the company at any time. It further eased out the limitation period for an individual to start OPC by reducing the residency limit to 120 days contrasting to the previous 180 days. This will encourage numerous NRI’s to invest and set up OPCs.

Another measure taken to ignite the startup splurge is the government’s decision to set up a Fintech hub at Gandhinagar Gujarat International Finance Tech-City known as the GIFT City. The chief government officer of GIFT City, Tapan Ray said “The development of a world-class fintech hub at GIFT City announced in today’s budget will go a long way in promoting and developing fintech start-ups”. This assists the possibility to provide workspaces, residential flats and other faculties to explore startup conduciveness at a subsidized price making it a potential hotspot for Fintech startups.

These measures and announcements in budget 2021 come as supporters to the governments previously undertaken measures to support startups as a part of ‘Start-Up India’ scheme. The government has simplified regulations and provided various income tax exemptions to encourage the incorporation of new startups and to build a favorable venture capitalists’ environment. With the already declared Startup India Seed Fund to provide financial assistance to the startups with an amount of around 945 crores, these announcements further propel the facilitation of a startup-friendly environment.

While all these direct measures impact the startup atmosphere in a profound way, the indirect measures taken in the budget 2021 through enhancing healthcare landscape, infrastructure building and reducing the friction in banking and finances will also result in a net positive impact on the economy which in turn will facilitate the inclusion of more number of startups in the coming few months.