6 initiatives in Union Budget 2021 that aim to boost ease of doing business

Going by initial reactions, Union Budget 2021 has been received well, with a lot to cheer and a lot less to fear. Finance Minister Nirmala Sitharaman has attempted to address the core problems being currently faced by the economy without disrupting the tax brackets, which has been welcomed by the markets. The Finance Minister specifically expressed the government’s vision of ‘Atmanirbharta’ or self-reliance.

Here are some measures proposed in the budget that aims to enhance the ease of doing business in India:

1. Extension of tax holiday for startups

Last year, the government had announced a tax holiday for startups to encourage entrepreneurship in the country. Startups with a turnover of less than Rs 100 crore were allowed a deduction of up to 100 percent of their profits for three consecutive assessment years. The startups were expected to claim a deduction for the first ten years of operations.

In 2021, the Finance Minister extended the eligibility period to claim tax holiday for the startups to March 31, 2022. This move was much-needed considering both the need to encourage entrepreneurship, as well as help startups, to deal with the impact of COVID-19 on their business.

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2. Capital Gains Tax exemption for investing in startups

In another announcement that may benefit the startup ecosystem, the government has extended the eligibility period to claim capital gains tax exemption for investments made in startups by one more year to March 31, 2022.

3. Incentives for operating an OPC in India

Most entrepreneurs and innovators are individuals with just a business idea. When they decide to register their business, a One Person Company (OPC) is an ideal structure. Until now, there were several restrictions on registering and running an OPC in India. In this Budget, the government has decided to incentivise the incorporation of OPCs by allowing them to grow without any restrictions on turnover and paid-up capital.

The government is also planning to allow OPCs to convert 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 permits NRIs to incorporate OPCs in India.

4. Support for MSMEs

The government has proposed several changes to benefit micro, small, and medium enterprises (MSMEs). To boost domestic MSMEs, the government proposes to set aside Rs 15,700 crore for MSMEs in FY 2022.

Further, the Ministry of Finance plans to increase the duty on steel screws and plastic builder wares from 10 percent to 15 percent, and rationalise the exemption on import of duty-free items. This has been done to incentivise exporters of garments, leather, and handicraft items since most of them are made by MSMEs.

Since medium-to-small enterprises also produce good-quality leather domestically, the government plans to withdraw exemption on imports of certain kinds of leathers. Last year was tough for smaller businesses, with many MSMEs finding themselves in a debt trap.

The government proposes to strengthen the NCLT framework and create a separate framework for MSMEs to help them resolve their debts without losing their business.

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5. Decriminalization of the LLP Act

To provide greater ease of doing business in India to LLPs, the government proposes to decriminalise certain compoundable offences under the LLP Act involving minor technical and/or procedural violations.

6. Promotion of digital modes of payment

Digital payments are revolutionising the way India shops and spends. In its endeavour to boost digital payments in the country, the government has set aside Rs 1,500 crore for the promotion of digital payments. However, it is yet to be seen how this corpus would be spent.

The pandemic and subsequent lockdowns have badly impacted the country’s economy and a major impetus was needed to shape an economic recovery. With these announcements in the budget, the government has expressed a clear focus on helping domestic businesses survive this phase and eventually thrive. These steps surely seem to be in the right direction but their execution will hold the key.

For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page of budget.yourstory.com