Indian Union Budget 2021-22 extended the eligibility of claiming tax benefits for startups by one more year to 31 March 2022. On similar lines to promote investments in startups, capital gains have been exempted for investments by one more year till 31 March 2022. While this would mean status quo, it also signifies the growing importance of startups and providing a conducive environment for growth and development. From a process perspective, the budget has allowed the incorporation of ‘One Person Companies’ (OPCs) to promote startups and innovation without any restrictions on paid-up capital and turnover. They can convert into any other type of company at any time. It also reduces the residency time limit for an Indian citizen to set up an OPC from 182 days to 120 days. NRIs can also incorporate OPCs in India.
The Budget 2021-22 doubled the allocation to the MSME sector to INR 15,700 crores (vs. INR 7,572 crores allocation in Budget 2020-21). In addition to the increased allocation, the Budget has also focused on promoting domestic manufacturing that benefits the MSME sector. Increased thrust on the Atmanirbhar Bharat program, higher duty on mobile parts/ auto parts, exemption of duty on steel scrap up to 31 March 2022, reduction in customs duty on long steel products, rationalisation of duties on import of duty-free items as an incentive to exporters in areas of garments/ leather/ handicrafts, relief to copper recyclers through duty reduction on copper scrap etc. are also incentives to promote the domestic manufacturing industry and ensuring import substitution. Also, customs duty on finished synthetic gemstones has been raised to encourage their domestic processing. These measures will pave the way for higher role, growth, and employment of MSMEs in India. The Budget also provides for the introduction of a special framework for debt resolution in respect of MSMEs.
Additionally, with the increased Capex from the government kitty (34 per cent on the back of 30 per cent in FY21RE), focus on healthcare, infrastructure, digitization (Digital Census), education, textiles, etc. will have a positive effect on the growth prospects of MSMEs. Start-ups that are focused on Healthtech, Edtech, Digital Offerings, Financial Inclusion, etc. are direct beneficiaries from the likely increase in the commercial volumes. The strengthening of Atmanirbhar Bharat and Production Linked Incentive (PLI) Schemes will go a long way in proliferating many domestic manufacturing/ processing industries and MSME ecosystems that are linked with them in the value chain.
Samir Sheth is the Partner and Head – Deal Advisory Services at BDO India. Views expressed are the author’s own.