Budget 2021 Reactions: Startups Happy with Tax Incentives One-Person Companies and Funding

The Indian startup ecosystem is welcoming the 2021 Union Budget for its tax relief, incorporation of One-Person Companies (OPCs), and funding.

Finance Minister Nirmala Sitharaman (Image by Source – DOD photo by U.S. Air Force Staff Sgt. Jette Carr))

The Union Budget 2021 is finally out, and the startup ecosystem is relieved to receive leniency in taxes. The first-time paperless budget was presented by Finance Minister Nirmala Sitharaman in a ‘Made in India’ tablet, a significant step towards the nation´s digitization.

The much-awaited budget sports a sharp increase in capital expenditure, massive investments in infrastructure roads and railways, and customs duty reduction on certain components to promote domestic manufacturing, indicating the intent to boost the economy and create a self-reliant India.The budget stresses focus on continued expenditure on infrastructure in all areas, in continuation to the government´s policy and strategy of Atmanirbhar. There is also a focus on healthcare development infrastructure. There is also an intent to reduce the fiscal deficit.

Amid the COVID-19 struck volatile markets, the startup sector has faced massive challenges in the past year. Hence, startups were expecting to be a priority agenda for the government in the budget 2021.

UNION BUDGET HIGHLIGHTS FOR STARTUPS

Following are the highlights of the budget announcement regarding the startup sector in India:

Tax incentives for startups, including an extension in capital gains exemption by one year
Incorporation of OPCs to incentivize innovation
Announcement if INR 1,500-crore scheme to incentivize digital payments
Proposal to reduce margin money requirements from 25% to 15% for startups
Doubling of fund allocation for MSMEs to INR 15,700 crores for FY22

The Tech Panda gathered the reactions, both positive and negative, of several startup leaders to find out how the budget has fared in the eyes of the startup ecosystem.

POSITIVES

Dr. Nikhil Sikri, CEO and Co-founder Zolostays

There are a couple of things that have gone right with the budget, but the biggest positive is that there are no big negatives

“There are a couple of things that have gone right with the budget, but the biggest positive is that there are no big negatives. There is no additional tax burden, which a lot of people were afraid of before the budget. We got spared of taxes on the ultra-rich, Covid cess (which almost felt like a certainty before the budget) or any tinkering with long term capital gains tax.”

Anish Mulani Director India CEO Wave

“It is encouraging to see the government’s support for the startup sector in this budget. By extending the tax holiday for startups for one year, the government has given the much-needed breather to the existing startup ecosystem, which got choked during Covid time.

Focus on digitization is clear, which is good for the industry

The continued extension of the Stand-Up India programs by the government will ensure that startups all across the country will receive funds to accomplish their goals and dreams. Focus on digitization is clear, which is good for the industry. Overall, it feels great to see that the government is making more room to nourish startups in India.”

Srividya Kannan Founder Director Avaali Solutions Pvt Ltd.

“For startups, this is a great budget with tax incentives and extensions on tax holidays and capital gains exemption. Incorporation of a OPC, including residency limit for an Indian citizen to 120 days, are all really good measures to increase the number of startups in India.

This budget has brought in the much needed boost across several sectors to accelerate the pace to recovery and growth

“Also, the change in definition of small company will definitely benefit several enterprises in the form of further simplifying adhering to regulatory and governance requirements. It is estimated that over two lakh firms will be benefitted as a result of this.

“Also, tax reforms and simplifying the tax governance to make it easier for companies and individuals is a much welcome move. Overall, this budget has brought in the much needed boost across several sectors to accelerate the pace to recovery and growth.”

Kumar Ritesh Founder and CEO CYFIRMA

“This is one of the most business-friendly Union Budgets we have seen in a while, and this is rightly so given the urgent need for a strong economic recovery. The initiatives to ease the setting up of new companies bode well for the technology sector. This will promote an even greater entrepreneurial culture and put India squarely on the global map of technology innovation.

This will promote an even greater entrepreneurial culture and put India squarely on the global map of technology innovation

“Given India’s young, dynamic and tech-savvy workforce, we should expect more companies choosing India as a base to leverage on our vast talent. India’s fast growing middle-class population should also be a magnet for businesses seeking to tap on the underserved market here.

“Further, the FM´s announcement that companies will receive INR 1,500 crore to encourage their adoption of digital payments will go a long way to promote fintech innovation, and more importantly, give millions of unbanked Indians the opportunity to participate in the financial system. With digital payments becoming mainstream, the government should also start looking at uplifting cybersecurity awareness and education among businesses as well as consumers. This way, the twin engines of growth – innovation and digitalization – can be sustainable in the long run.”

Dr. Ajay Data, Founder, Videomeet Pvt. Ltd.

“The announcement by the Honourable FM regarding the startups was much required at the moment and will help the fledgling startups with meagre resources to continue with their business operations without worrying about the compliance with complex taxes. The announcement comes soon after the Prime Minister announced the setting up of INR 10,000 crore fund for seed funding of startups.

As predicted, startups were given importance under this budget

“These moves by the government make the intent of the government clear, that it wants to promote entrepreneurship and help the enthusiastic young entrepreneurs in the country. The setting up of a separate administration structure to promote ease of doing business is a laudable move by the FM.

“Also, as predicted, startups were given importance under this budget, and the industry is poised to be greatly benefited with the tax holiday extended by another year till 31 March, 2022.”

Rajat Singhania Founder of HyLyt by SocioRAC

“The budget is growth-oriented. Govt expenditure on infrastructure is high, which will boost the economy. There are no major changes in direct/indirect taxes. For startups, the tax extension, increase in paid-up capital, registration of one-person firms, NRI permission to incorporate OPCs in India, is a good boost to startups. Overall, a positive budget to spur growth. Stock markets have responded very positively, and we can expect to overcome some of the losses of the year gone by.”

Amol Roy Founder Shutter Cast

“Startups got the much-needed tax holiday for another year, which is bound to bring in major respite for SMBs. We, being a part of the startup ecosystem ourselves, heartily welcome this move, and hope that startups will soon be able to get back up on their feet.”

Nikhil Das Founder Agdhi

“The budget has realized the importance of startups in job creation and has extended the tax holiday for startups till March 2022. Already, withering under the impact of the pandemic, the announcement has come as a big relief for startups that have become a critical employment generator with 4,70,000 jobs. Such measures are likely to boost sentiments across the board among potential entrepreneurs, who are keen on entering the market with their business ideas.

The budget has decided on supporting sectors that generate employment and seeks to revive an economy that has been severely hit by a global pandemic

“Announcements in the budget were preceded by some welcome news for startups that included the broadening of the definition of startups and approval of the “Startup India Seed Fund Scheme,” which comes with a corpus of INR 945 crore. Overall, the budget has decided on supporting sectors that generate employment and seeks to revive an economy that has been severely hit by a global pandemic.”

Kanika Agarrwal Chief Investment Officer Upside AI

“It is important to watch how the government executes its DFIs, PLI scheme expansion, asset reconstruction company, PSU recapitalization. Similarly, it is heartening to hear of the government’s intention to “minimum government, maximum governance”. The overhaul of redundant customs duty structure, GST simplification, higher FDI in insurance, stronger NCLT, single Securities Markets Code and making tax assessments easier are all encouraging signs.

Disinvesting/privatizing PSUs and insurance companies is the correct move

“Further, it has committed a larger outlay (albeit still only 2.5% of GDP terms) on infrastructure spending across rail and rural. We hope this will get employment back up as the country looks to fill the hole in the economy left behind by COVID.

“Disinvesting/privatizing PSUs and insurance companies is the correct move. While the intention to privatize and disinvest has been there in nearly every budget, given the difficulty the government has had with this target in the past, we remain cautious on how the centre will balance its books and manage the committed deficit.”

Shivjeet Ghatge CEO and Co-founder StepSetGo

“One more year to grab tax holidays by incorporating startups in FY 2021-22 is relieving. Additionally, extending the due date for investing capital gains in startups would indeed motivate a larger number of startups to come into play and generate more opportunities.”

Atul Rai CEO Staqu

“The FM proposed to revise the definition of small companies under Companies Act, 2013 by increasing their threshold for capitalization to not exceeding INR 2 crore from the current INR 50 lakh and turnover to not exceeding INR 20 crore from the current INR 2 crore. With this step, the Government aims to benefit about two lakh companies.

The Government aims to benefit about two lakh companies

“We further welcome the FM’s plans to incentivize incorporation of one-person companies. Besides allowing a company to convert into any other type at any time, the Government has reduced the residency limit for an Indian citizen to set up one person company from 182 to 120 days, while allowing NRIs to establish OPCs in India. This move will provide a big boost to startups and innovators by enabling them to grow without regulatory restriction on paid up capital and turnover, thereby bolstering the startup ecosystem and the economy at large.”

Varun Babbar Managing Director Qlik India

“We appreciate the government’s vision of an Atmanirbhar Bharat by providing economic assistance through tax reliefs, incentives, and new policies. Continued support in areas like education and technology as well as providing breathing room for startups, through initiatives like providing tax relief for one more year, will help to kickstart a resilient economy for all industries. The government’s allocation of INR 1,500 crores towards promoting digital modes of payment will also boost India’s digital payment infrastructure. Aligning with our focus to provide active intelligence and real-time analytics, the government’s allocation for infusion of INR 20,000 crores will help to reform the country’s surge in digital payments for the post-pandemic future.”

NEGATIVES

Dr. Gaurav Hirey, Founder and CEO of GoEvals

“The biggest need is to push consumer spending, and I think this budget should achieve a good level of success if it is implemented in its true spirit. Initiatives like increasing the amount of spending in health and wellbeing, which was long overdue, will definitely help, as will building of road infrastructure, boosting the textile industry, and creating more ports, among others. Given the extreme circumstances faced due to the pandemic, the budget comes across as balanced and practical.

Startups are not getting the importance that they surely deserve

“However, from a startup ecosystem perspective, I am not sure what this budget is really offering to startups. Extension on the tax holiday by a year and reducing margin requirements are not significant, and startups are not getting the importance that they surely deserve. There is no concrete proposal on easing the process for doing business, nor on-ground real support in terms of finance and education of startups, which continues to be a major issue. End of the day, how this budget will translate into real help for struggling startups, given what they have faced in the past year, is a big question, and I believe this is a lost opportunity in this area.”

Pankit Desai Co-founder and CEO Sequretek

“The much-awaited Budget 2021 has provided a significant push for healthcare, agriculture, and rural economy, but unfortunately, nothing concrete for startups and the surrounding ecosystem. For the majority of startups, demand remains the same, nothing changes, its business as usual.

The budget did not share anything substantial in terms of ease of doing business, compliance or GST taxation that would make life any different for a cybersecurity company like ours

“Forming a one-person company doesn’t help startups whatsoever, unless they want startups to form a single person company. There is some push for fintech and startups from this sector will stand to benefit, however, the budget did not share anything substantial in terms of ease of doing business, compliance or GST taxation that would make life any different for a cybersecurity company like ours.

“I am hoping that the stimulus and other investments that allow the economy to do well indirectly will support us, as we finally serve that economy in some shape and form through our customers.”

Dr. Vibha Tripathi Founder and CEO Swajal

More support is needed to enable startups to recover from the pandemic, especially easier access to capital through debt and equity

“Jal Jeevan is a step in the right direction, and if implemented with a vision of technology and innovation, it cannot only greatly benefit people but also force startups to think out of the box. Tax holiday and capital gains tax exemptions are helpful. However, more support is needed to enable startups to recover from the pandemic, especially easier access to capital through debt and equity.”

Sanjeev Gupta Managing Director Kanchan Metals

I would have been happier to see specific announcements with reference to the private sector at the broader level

“The Budget announcement seems to be from a long-term approach and will give impetus to investments in the future. Once infra develops, there will be an overall development. Additionally, there are no specific announcements for private sector impetus for Capex and for creation of jobs. I would have been happier to see specific announcements with reference to the private sector at the broader level to augment investments and job creations.”

Rohit Jain Co-founder DUX Education

“Tax holidays are welcome. Having said that, I don’t think that a lot of startups are actually generating profit. It’s a case of tangential benefit. A direct impact would have been through GST concessions to the DIPP registered startups at least, in my opinion.”