Startup Policies
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ISSUE NO 5, 1 FEB 2021 ISSUE NO 5 1 FEBRUARY 2021 STARTUP POLICIES Union Budget 2021: The 9 Major Takeaways Key Takeaways From Union Budget 2021-22 For For Startups From The First Digital Budget Indian Startups Speech The primary focus areas of the budget were Source: Inc42 healthcare and generating jobs by increasing the government’s expenditure across sectors India’s Finance Minister Nirmala Sitharaman on even as the country struggles to bounce back Monday (February 1) presented the Union Budg- from a pandemic-induced recession. et 2021 — with a sharp focus on digital transfor- mation and the next phase of economic recovery Tax Holidays For Startups; Exemptions For In- after the Covid-induced market recession. She vestors also ditched the bahi khata that had become a Besides the new definition for small businesses, major talking point during the longest budget Sitharaman also proposed an extension of the speech ever last year and went with a ‘Made in tax holiday to startups by another year to March India’ tablet. Besides this, the focus was also 31, 2022 during her Union Budget 2021 address. around key sectors in the digital economy with Moreover, she also announced that in order to increased spending for healthcare, education incentivise investment in startups, the govern- and employment generation in manufacturing ment is proposing extending the eligibility period and infrastructure. of claiming capital gains exemption for invest- Delivering her budget address, the ment made in the startups by one more year to FM projected a fiscal deficit of 6.8% of gross do- March 31, 2022. mestic product for 2021-22. The current year In the Union Budget of 2017, the then finance was expected to end with a deficit of 9.5%, she minister, the late Arun Jaitley had announced said, a sharp rise from the 7% expected earlier. that startups that were incorporated after March Despite this, the FM was bullish about recovery 31, 2016 could avail a tax holiday for three out of of the Indian economy. seven years, from the date of incorporation. Earlier, the Economic Survey had projected a Startups can avail this exemption provided that GDP growth rate of 11% for the fiscal year 2021- annual turnover does not exceed INR 25 Cr in 22. Whether the government’s spending boost any financial year. gives the thrust to key sectors to achieve this benchmark remains to be seen. In the mean- Insurtech Gets FDI Booster Shot while, here are the key highlights from the Union Among the key decisions from the Budget was Budget 2021-21 for startups. the proposal to amend the Insurance Act, 1938 HIGH COMMISSION OF INDIA , SINGAPORE 1 STARTUPS WATCH to increase permissible foreign direct invest- ISSUE NO 5, 1 FEB 2021 ment limit (FDI) from 49% to 74% in insurance increasing their threshold for capitalisation companies at the Union Budget 2021. from not exceeding INR 50 Lakh to not exceed- This would allow foreign ownership and control ing INR 2 Cr and turnover from not exceeding of insurance companies in the country with cer- INR 2 Cr to not exceeding INR 20 Cr. tain safeguards. However, the majority of di- “This will help more than 200K companies in rectors on the boards of such companies and easing their compliance requirements,” said key management persons will have to be resi- Sitharaman. dent Indians, with 50% directors being inde- By the new definition of small companies under pendent directors and a specified percentage the Companies Act, a large number of startups of profits being retained as general income. will be recognised as small companies. Small With apt support and investment by the private companies enjoy certain benefits over other sector these measures will have a multiplier ef- companies in terms of compliance require- fect and take insurance to a large section of In- ments. For instance, a small company needs to dian population, the FM said. hold only two board meetings in a year, unlike Foreign direct investments in insurance compa- other companies which are required to hold nies are currently permitted under automatic four such meetings in the same period. route up to 49% with a rider that insurance In a separate announcement, which is also ex- companies should be Indian owned and con- pected to ease the compliance burden on trolled, i.e. more than 50% shall be beneficially startups, Sitharaman proposed to use data ana- owned by resident Indian citizens and control of lytics, artificial intelligence, machine learning to the insurance company shall be in the hands of make regulatory filings more frictionless for resident Indian citizens. businesses and startups in a revamp of the min- istry of corporate affairs (MCA) portal. The gov- Fintech In Focus ernment had said that the ministry would look to The Indian government proposed allocating INR introduce AI-based features in MCA-21 when 1,500 Cr to boost the penetration of digital pay- version 3.0 of the portal is rolled out. ments as well as other measures to boost finan- The MCA-21 3.0 is expected to have features cial inclusion. such as single source of truth, ease of doing Finance Minister Nirmala Sitharaman, while business, e-adjudication, online compliance presenting the Union Budget for 2021-22, has monitoring, among others. All this is aimed at proposed to set up a “world-class” fintech hub making the authenticity and comprehensive- near Gujarat capital Gandhinagar at GIFT City ness of corporate even better. (Gujarat International Finance Tec-City). For the startup ecosystem, this is crucial as Besides this, the government will also introduce MCA-21 shares crucial information to various a bill to set up development financial institu- stakeholders such as the regulators, investors tions (DFI) with an outlay of INR 20,000 Cr to and companies. All filings under the various boost credit access for small businesses, laws for companies and businesses in India are MSMEs as well as those working in areas of fo- submitted through this portal. cus such as manufacturing and infrastructure. To further facilitate credit flow under the Focus On Healthtech; National Health Portal scheme of Stand Up India for scheduled castes To bridge the urban-rural healthcare divide, and tribes, as well as women entrepreneurs, Sitharaman announced a total allocation of INR the government has proposed to reduce the 2.23 Lakh Cr for healthcare and wellness initia- margin money requirement from 25% to 15%, tives in the country during the Union Budget and to also include loans for activities allied to 2021-22. The plan includes a pan-India agriculture. healthcare portal for digital health manage- ment, as well as a Mission Poshan 2.0 for nutri- Lowering Compliance Burden On Startups tion and diet programmes in rural districts. The FM also proposed to revise definition under The budget allocation increased by 137% over Companies Act, 2013 for small companies by the previous year. The FM also announced Aat- HIGH COMMISSION OF INDIA , SINGAPORE 2 STARTUPS WATCH ISSUE NO 5, 1 FEB 2021 manirbhar Health Yojana with an outlay of INR Budget 2021 address. The government has an- 64,180 Cr over 6 years. She announced opera- nounced an outlay of INR 18,000 Cr for the tionalisation of health units at 32 airports, 11 same for the 2020-21 period. seaports and 7 land crossings. Stressing on the need for greater commerciali- The budget also allocated INR 35,000 Cr for sation, the FM allocated INR 1,70,000 Cr as Covid-19 vaccination. Talking about India’s budgetary allocation for the transport sector fight against Covid-19, Sitharaman said the for 2020-21. She added that the National High- country has two vaccines available, adding that ways Authority of India (NHAI) will be encour- two more vaccines are expected soon. aged to pursue “greater commercialisation of “Expansion of the integrated health information highways to raise finance”. portal to all states and union territories to con- Besides proposing highway works in several nect all public health labs,” said Sitharaman. states such as Tamil Nadu, West Bengal, Kerala and Assam, all incidentally poll-bound states, Rapid Digitalisation Underway In Agriculture the Minister also talked about bringing in me- Sitharaman revealed that around 1.68 Cr farm- trolite and metroneo technologies, which are ers have registered on government’s e- rail-guided urban transport systems with rub- agriculture marketplace — eNAM, recording a ber-tyred electric coaches powered by an over- transaction worth INR 1.14 Lakh Cr. head traction system running on elevated or at- Further, she stated that the eNAM platform cur- grade sections, in tier 2 and tier 3 cities. rently has more than 1000 mandis. “With all To boost adoption of EVs and modern low- this, the agricultural infrastructure fund would emission vehicles, the government also an- be made available to AMPCs or Mandis, aug- nounced a voluntary vehicle scrapping policy to menting their infrastructure facilities,” she add- phase out old and unfit vehicles. “This will help ed. in encouraging fuel efficient, environment Founded in April 2016, eNAM is an e-trading friendly vehicles, thereby reducing vehicu- portal that connects with physical wholesale lar pollution and oil import bill,” Sitharaman markets through a virtual platform, creating a said. unified national market for agricultural pro- Vehicles would undergo fitness tests in auto- duce, where farmers can sell their produce at a mated fitness centres after 20 years in case of transparent and competitive price, online. personal vehicles, and after 15 years in case of With the government being at the receiving end commercial vehicles. of farmers’ ire for the three controversial agri- culture reform laws that many believe will hurt Expansion Roadmap or National Education Poli- minimum support prices (MSPs) in the long run, cy the finance minister announced measures to Taking forward the National Education Policy allay concerns.