The key highlights of the budget for start-ups and other companies have been briefly explained below.
Boost to the Start-up Ecosystem
The FM highlighted the growth of entrepreneurial activities in the country and called start-ups as “engines of growth for our economy”. In lieu of the same, it was proposed that the government would provide seed and early stage funding to start-ups.
Presently, an eligible start-up is allowed deduction of 100% of the profits for three consecutive years out of seven years if the total turnover does not exceed Rs. 25 crores. This tax benefit is proposed to be extended to larger start-ups by way of increase in the turnover limit from Rs. 25 crores to Rs. 100 crores along with extending the period of eligibility for claim of deduction from the existing 7 years to 10 years.
Recognising the need of attracting and retaining talented employees in these start-ups, the FM proposed to reduce the burden of taxation on the employees by deferring the tax payment on exercise of Employee Stock Option Plan. Presently, the options are taxable as perquisites at the time of exercise. The proposal provides for deferred tax payment on the exercise of options by five years or till they leave the company or when they sell their shares, whichever is earliest.
The Budget has also proposed that infrastructure agencies of the government will involve youth-power in start-ups. The start-ups would help in rolling out value added services in quality public infrastructure for citizens.
Single Window Facilitation for Foreign Investors
In a bid to simplify investment process for the companies, the FM proposed to setup an Investment Clearance Cell portal which would seek to provide “end-to-end” support and facilitation, including pre-investment advisory, information related to land banks and facilitate clearances at Centre and State level.
The FM further announced her proposal to remove the Dividend Distribution Tax paid by the companies on the dividend paid to the shareholders. The dividend would only be taxed in the hands of the investors at the applicable rate.
Lastly, in order to incentivise the investment by the Sovereign Wealth Fund of foreign governments in the priority sectors, it is proposed to grant 100% tax exemption on interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before 31st March, 2024 and with a minimum lock-in period of 3 years.
In furtherance to the goal and stressing on digital governance, it was proposed that a digital platform be set-up for companies, especially start-ups, which would facilitate seamless application and capture of intellectual property rights.
Reiterating that data is the “new oil” and highlighting the growth of Analytics, Fintech and Internet of Things, it was proposed that schemes and policies would be introduced to set up Data Centre Parks throughout the country which would enable companies to incorporate data in each step of their value chain.
Encouraging Domestic Manufacturing and Infrastructure
The budget while focussing on incentivising investments in various sectors, proposed a scheme focussed on encouraging manufacture of mobile phones, electronic equipment and semi-conductor packaging. The FM mentioned that this scheme could then also be adapted for medical devices.
Her speech also mentioned the proposal to set up five new smart cities in public private partnership by collaborating with States.
Audit relief to MSMEs
In terms of the current legal framework, companies with a turnover exceeding Rs. 1 crore, are required to get their accounts audited by an accountant. In order to reduce the compliance burden on small retailers, traders, shopkeepers who comprise the MSME sector, it was proposed to raise the turnover threshold for audit from Rs. 1 crore to Rs. 5 crores. This is conditional upon the fact that less than 5% of the business is carried out in cash.
Instant PAN through Aaadhaar
The FM with the objective of simplifying the allotment of PAN, has proposed to launch a system under which PAN shall be instantly allotted online on the basis of Aadhaar without any requirement for filling up of detailed application form.
This post has been contributed by Ms. Vaneesa Agrawal and Ms. Sanyukta Srivastav.
[DISCLAIMER: This article is for academic purpose and is solely to provide readers with general information regarding developments in Indian law. The information contained herein does not constitute legal or a professional advice.]