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With the declaration of the Union Budget 2021, many startups and MSMEs took a sigh of relief as the budget proposed an extension of eligibility for startups for claiming tax holidays, alongside the capital gains exemption for investments in Indian startups till March 31, 2022.

To boost the MSME and startup ventures, the Finance Minister proposed friendly measures to accelerate the growths of startups and also suggested a digital growth setup. The announcements were in favor of the small businesses in regards to insolvency processes and setting up relaxed norms to set up businesses and incentivizing funding for small businesses, favoring MSME advantages to get back their business back on track.

Now, let us look at the points proposed in the Union Budget for MSMEs and startups.

Incentivizing One Person Companies (OPC) setup 

Startups will have it easy to open their business as the budget benefits startups to open one-person companies (OPCs) to grow their business without restrictions on turnover and paid-up capital. The Budget also proposed to reduce the residency limit for Indian citizens to set up the one-person companies from 182 days to 120 days, allowing NRIs to operate in India. The Finance Minister also allowed conversions into other types of companies at any time catering to MSME advantages to start their business without any restriction.

Boosting digital payments setup

The Finance Minister announced Rs. 1,500 crores in regards to a proposed scheme to provide a financial incentive that would promote digital payment modes.

Tax holiday extension

The Union Budget announced to boost startup investments by proposing an extension of eligibility to claim tax holidays pertaining to startups and MSMEs. It also proposed a capital gains exemption for investment in the startup ecosystem till March 31, 2022, in order to incentivize funding.

Reduced custom duty

The Union Budget aimed at reducing customs duty to 7.5% on flat, semis, and long products of alloy, non-alloy, and stainless steels. Here, the MSME advantages could be to accelerate their growth and making it easy for the industries affected during the COVID-era with a hit in steel and iron prices.

The Finance Minister also announced exempting duty on steel scrap until March 31, 2022. This would offer relief to metal recyclers, a large number of which consists of MSMEs. Besides, there will be an increase in duty from 10% to 15% on plastic builder wares and steel screws, which would fall under MSME advantages at large.

Insolvency Resolution and Budget allocation

For the faster resolution of cases of MSMEs and startups, the National Company Law Tribunal (NCLT) framework will be strengthened, alongside implementing e-courts system and debt resolution methods.

The Finance Minister has allocated a budget of Rs. 15,700 crores for the MSME sector, which is more than double the preceding budget, i.e., Rs. 7,572 crores.

Revision in the Definition

The Finance Minister proposed a revision in the definition of small companies in the budget. It is done by increasing thresholds for paid-up capital from Rs. 50 lakhs to Rs. 2 crores, alongside increasing the turnover from Rs. 2crores to Rs. 20 crores. It would benefit more than to lakh small enterprises in regards to easing their compliance requirements, said the minister.

Withdrawing on Imports exemption

The Union Budget announced the withdrawal of exemption on imports of certain kinds of quality leathers that are domestically produced by MSMEs in a large quantity.