Union Budget 2021: Govt Extends Tax Holiday For Startups Until March 2022

Finance Minister Nirmala Sitharaman on Monday announced the extension of tax holidays for startups by one year until March 2022 as a part of the Union Budget 2021-22. The minister also announced expanding capital gains tax exemption by one year.

The government has also proposed to incentives incorporation of one-person companies (OPCs). The move is probably going to help more smaller new companies and innovators.

The government plans to bincentivise these OPCs by allowing them “to grow without restriction on paid up capital and turnover, allowing conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days, and allow also non-resident Indians to incorporate OPCs in India”.

“This will be a big boost for startups,” Sitharaman said while presenting the Union Budget.

Startup reactions

True to form, the startup community has hailed the choice.

“This year’s budget has empowered value creators to invest in India’s growth story. Provisions such as allowing the creation of OPC’s without restrictions, extending the claim period for a tax holiday for startups and extending the capital gains exemption to encourage investments will help promote the growth of India’s already burgeoning startup ecosystem. Apart from this, reduction in compliance burdens through single registration and licensing, and filing of online returns is also a step in the right direction. Finally, the FM’s speech highlighted the importance of promoting inclusion and participation of all in the workforce. Provisions that will allow women to work in all categories with adequate protections helps recognize their valuable contributions to furthering the growth of our economy,” Kunal Shah, Founder, CRED said.

“The budget was awaited with a lot of expectations and of that most have been met. Infrastructure & healthcare were the main spotlights of budget 2021 and a large investment has been allocated for the expansion of the road network. Also, just like it was predicted, Startups were given importance in this budget as well. The tax-exempt on the revenue, as well as investments, have been increased by one more year which will be beneficial for the startup growth in the country. On the other hand, the investment in MSMEs and the moratorium on loans of up to 2Cr will also play a crucial role in for the Indian corporates. Privatization of several government-related sectors such as ports will also add to the economic growth and employment generation,” Lokendra Ranawat, Founder & CEO, WoodenStreet said in a statement.

“Incentivising incorporation of one-person companies (OPCs) will definitely benefit a lot of entrepreneurs. Easing restrictions on Paid-Up capital and easy conversion to Pvt Ltd or other types of company is a cherry on top,” said Snehil Khanor, CEO & Co-founder, TrulyMadly.

“With the government proposing to provide tax incentives for startups and reducing compliances for one-person companies, we at Octro believe that the government’s decision will benefit start-ups and innovators in India. India is amidst a boom in digital technology adoption and the budget will help raise India’s economic footprint in the global scale and help create greater opportunities for companies to invest and develop services in the country,” said Saurabh Aggarwal – CEO, Octro Inc.

“Steps like the compliance and tax holiday given to startups, setting up of a fintech hub at GIFT city augur well for ‘Digital India’ and ‘Make in India’ initiatives.

FM’s proposition to use data analytics, artificial intelligence, machine learning for the Ministry of Corporate Affairs is an encouraging move for the tech ecosystem. The suggestion to introduce AI-based features in MCA 21 3.0 to address compliance needs of startups are thoughtful steps in creating a conducive business environment for entrepreneurs.

The push for digital payments and the declaration of a fintech hub shows the government’s seriousness for digitalisation of banking. We do hope Indian banks will pick on the sentiment and embrace thorough digitalisation of their processes in collaboration with the flourishing fintech ecosystem,” Ankit Ratan, Co-founder and CEO of Signzy.

“The “Tax holiday” that was proposed in the budget is a highly positive step for many startups as they continue to be tax exempt for another year. This is also coupled with a capital gains exemption that is aimed at providing ease for facilitating greater funding and investment.Startups can now use these funds for hiring much needed technical expertise(particularly the case for the tech sector), planning expansion, better service delivery, etc. In a post COVID economy, this can be beneficial for many startups that are aiming to rejuvenate and get back on their feet. To add to this, there have been significant incentives provided to one person companies. The budget removes restrictions on paid-up capital and turnover, thus easing the burdens on innovators and entrepreneurs. Within the tech sector there are many startups that have taken shape, and ties in with the Atmanirbhar Bharat vision, the domestic ecosystem can now save valuable revenue and grow without worries regarding tax burdens,” said Kazim Rizvi, Founding Director, The Dialogue.