(This article was first published in The Financial Express.)
Every Union Budget focuses heavily on numerous areas of our economy, but invariably, what everyone has their ears on is the part about personal income tax. While income tax took a backseat at this year’s Budget, the major focus was understandably on reviving the economy after a tumultuous 2020.
2020 saw an 80% increase in digital payments, especially from tier 2 & 3 cities, and the finance minister did focus on capitalising on this momentum and incentivising the adoption of digital payments for the year ahead.
I believe that the `1,500-crore incentive will open a plethora of opportunities for fintechs to innovate for the new normal, leading to large scale adoption of digital payments even in the smallest of towns and villages. I’m hoping the funds will be used towards developing alternatives to the zero MDR policy and initiatives towards bringing digital financial literacy in vernacular languages. These will instill trust in the system and accelerate adoption from MSMEs and entrepreneurs who are apprehensive towards moving money digitally.
To further boost start-ups and small businesses, the FM also announced the advancement in the eligibility of claiming tax holiday for start-ups for one more year — till 31 March 2022. She also extended the capital gains exemption available for investments in start-ups till March 2022.
I believe that both these announcements will go a long way in helping the Indian start-up ecosystem fight their way after a pandemic-stricken financial year. Under Section 80-IAC of the Income Tax Act, start-ups recognised under the department of industrial policy and promotion (DIPP) are eligible to apply for a full deduction on profits and gains from business. The extension of this benefit by one more year will enable start-ups to reinvest their profits back into their business, allowing for further growth, employment and robustness in the ecosystem. The extension of capital gains exemption will also attract more funding for start-ups.
While on the subject of start-ups, I was happy to hear the finance minister’s announcement on allowing one-person companies (OPC) to be incorporated without any restrictions on paid-up capital and turnover. This, along with the fact that even NRIs will be allowed to incorporate OPCs in India, will go a long way in boosting entrepreneurship in India.
For small businesses, the revision of the definition of small companies under the Companies Act 2013 was more welcome news. The new definition increases their threshold for paid-up capital from not exceeding `50 lakh to not exceeding `2 crore and turnover from not exceeding `2 crore to not exceeding `20 crore. According to the finance minister, 2 lakh firms will benefit from this revision. With more companies qualifying as “small companies,” their compliance requirements will go down significantly. These will include matters such as fewer board meetings, no need for auditor rotation, and lesser penalties, among others.
On the whole, it was a Budget of many hits to make India Aatmanirbhar. I have to commend the finance minister for her focus on health and well-being, innovation and human capital. India seems to be winning the fight against the Covid-19 pandemic and the budgetary measures will be the booster shot that’s required.
With Rs 15,700 crore allotted to MSMEs, I hope there will be more “mini budgets” in the year to come that will help small businesses and start-ups flourish. I see the adoption of digital payments only going further up from here, especially with the introduction of the fintech hub. Such hubs can be modelled on the lines of SEZs, encouraging multiple players in the ecosystem to collaborate and build better payment infrastructure and hyperlocal solutions, ensuring that not only more Indians use digital modes of payments but those who have started paying digitally don’t go back to using cash.