Indian Union Budget 2021-22: Among the key observations from the Hon’ble Finance Minister’s speech was to incentivise the MSME sector. An amount of Rs 15,700 crores has been allocated in the union budget for the financial year 2021-22. It is also proposed that an alternate method of debt resolution will be introduced along with a special framework for MSME in the NCLT to facilitate adjudication. Further, benefits for MSMEs like increasing import duty on steel screws and plastic builder wares from 10 per cent to 15 per cent and prawn feeds from 5 per cent to 15 per cent. It is also proposed to rationalize exemptions on the import of duty-free items as an incentive to exporters of garments, leather, and handicraft items.
Startups should benefit from the proposed change in the definition of ‘small companies’. The change proposed will increase the threshold of (a) paid-up capital from the currently existing Rs 50 lakhs to Rs 2 crores and (b) turnover from Rs 2 crores to Rs 20 crores, thereby increasing the number of companies which will benefit from compliance relaxations available for such companies under the Companies Act, 2013. Further to incentivize the start-up regime, it has been proposed to allow One Person Companies (OPCs) to grow without any restriction on paid-up capital and turnover and also allowing them to convert into any other type of company at any time.
The residency requirement for Indian citizens to set up an OPC is proposed to be reduced from 182 days to 120 days in the immediately preceding financial year and non-resident Indians (NRIs) will also be allowed to set-up OPCs in India. The time limit for claiming tax holiday for start-ups as well as the available capital gains exemption for investment in start-ups has been extended by a year and shall be effective till 31st March 2022.
From the above, it is observed that the government is aware that MSMEs needs financial as well as technical support to survive and grow in the post-pandemic period. On both fronts there are developments as (a) reference to additional capital is there in the Budget speech; and (b) collaborations have started with Japan to facilitate the transfer of Japanese industrial and vocational skills, technique, and knowledge to India.
On the startup front, the regulatory relaxations provided under the just amended Companies Act, 2013 and the proposed decriminalization of certain offenses under the Limited Liability Partnership Act, 2008, will enable Indian entrepreneurs, and technology professionals to establish a separate legal entity (that is a company or LLP) to conduct business which will further reduce personal liability or risks assuming there is no mala fide act involved. Accordingly, the budget recognizes that the role of start-ups and MSMEs are central to India’s future, which includes growth in technology-led businesses as well as manufacturing businesses, which will propel India to the targeted $5-trillion economy.
Souvik Ganguly is the Founder and Managing Partner of Acuity Law. Views expressed are the author’s own.