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Budget 2021: Key Highlights for Start-ups

The annual budget for Financial Year 2021-22 was laid down today by the Finance Minister. We bring to you the key highlights of Budget 2021, which are material for start-ups:

Ease of Doing Business

  • De-criminalization of the procedural and technical compoundable offences under the Companies Act, 2013 has now been completed.

  • The FM proposed that now a process of de-criminalizing the Limited Liability Partnership Act, 2008 would be initiated.

  • The definition of Small Companies under the Companies Act, 2013, has been changed. The threshold for paid up capital has been increased from “not exceeding INR 50 Lakhs” to “not exceeding INR 2 crores” and the turnover has been increased from “not exceeding INR 2 crores” to “not exceeding INR 20 crores”.

  • Incorporation of One Person Companies (OPCs) has been incentivized by:

    1. Allowing OPCs to grow without any restrictions on paid up capital and turnover;

    2. Allowing their conversion into any other type of company at any time;

    3. Reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and;

    4. Allowing Non-Resident Indians (NRIs) to incorporate OPCs in India.

  • NCLT framework would be strengthened and e-court system would be implemented. Additionally, alternate methods of debt resolution and special framework for MSMEs shall also be introduced.

  • Artificial intelligence and machine learning would be used to simplify compliance management.

Key Changes in Labour Laws

  • Compliance burden for employers is proposed to be reduced by introducing single registration, single licensing and online returns.

  • A portal would be launched which will collect relevant information on gig, building and construction workers.

  • The four Labour Codes will be implemented.

  • Social Security benefits would be extended to gig and platform workers.

  • Minimum wages will apply to all categories of workers.

  • All categories of workers would be covered by the Employees State Insurance Corporation.

  • Women will be allowed to work in all categories and also in the night-shifts with adequate protection.

  • Late deposit of employees’ contribution by the employer shall not be allowed as deduction to the employer

Key Changes in Tax Laws

  • Eligibility period for start-ups to claim tax holiday has been extended by one more year. The cut-off date now is March 31, 2022.

  • Eligibility period for claiming capital gains exemption for investment in start-ups has been extended by one more year. The cut-off date now is March 31, 2022.

  • The time limit for re-opening of reassessment has been reduced from 6 years to 3 years.

  • Serious tax evasion cases can be re-opened till 10 years, only if the amount of tax evasion exceeds INR 50 Lakhs.

  • Faceless dispute resolution committee and mechanism has been set up to reduce litigation for small taxpayers. Taxpayers with taxable income up to INR 50 Lakhs and disputed income up to INR 10 Lakhs can avail faceless dispute resolution.

  • Faceless income tax appellate tribunal also proposed to be set up for online dispute resolution.

  • The limit of tax audit has been increased from INR 5 crore to INR 10 Crore for those who carry out 95% of their payments through digital transactions.

  • Proposed to simplify GST further.

Key Changes in Foreign Investment Law

  • FDI in insurance increased from 49% to 74%. Foreign ownership and control is permitted with certain safeguards. Majority of directors to be Indian and 50% of directors to be independent directors.

  • Tax would be deducted on dividend income at lower treaty rate for foreign portfolio investors.

  • Dividend payment for foreign companies would be exempted from levy of Minimum Alternate Tax (MAT) if the applicable tax rate is less than the rate of MAT.

Key Changes In Securities Laws

  • The provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 are to be consolidated into a rationalized single Securities Markets Code.

  • An investor charter would be introduced containing the rights of all financial investors across all financial products.

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