Budget 2021: Impact on Investors and Startups

 

View this email in your browser We have been highlighting to the government and at various industry bodies and forums that the key fillip the government can give today for the startup ecosystem is to significantly improve the Ease of Doing business for our founders. This remains the single biggest hurdle in making India a truly global leader in giving birth to startups and helping hundreds of them to become unicorns in the next few years. This budget has addressed a few of those items long standing on the industry’s wishlist One Person Companies: This is a good move and a long standing ask from the startup ecosystem. This will enable single founders to incorporate companies without necessarily requiring more people either as shareholders or on the board.These one person companies will be able to retain their status without restriction on paid up capital and turnover. They will also be allowed to convert into any other type of company at any time. Restrictions on NRIs setting up OPCs have been eased and presence in India of 120 days in a year enough to set up an OPC. Details of the scheme to be scrutinized more carefully on the exact compliance burden.   Compliance requirements reduced for companies with revenue of up to 20 Crores or paid up capital of INR 2 crores: This revenue has been increased from the previous number of 5 crores. The other number that has been increased for reduced compliance is a paid up capital from 50 Lakhs to 2 crores. Both these will help increase the ease of doing business for companies in India.   Decriminalization of compliance in LLP entities is also a welcome step. This will help the smaller entities think through their business and financing models without worrying about criminal liabilities in case there is a gap in compliance.   Merging of SEBI Act, depository Act and a few other acts will have a long standing impact on the angel investing framework towards creating a robust and supportive regulatory framework.   Eligibility of Tax holiday has been extended to March 2022, for companies registered as startups with the government. This will impact only those startups which are profitable. Since most of the startups funded by the MA network are at the initial stage and are still burning cash, this provision may not be beneficial to our portfolio.   Extending Capital Gains tax exemption for Investors in startups to March 2022: While this scheme had been introduced last year and the time for it has been extended to one more year, the requirements for the exemption of reinvestment in a government recognised fund is not useful. More is needed on this front for this to be a true needle mover for investors.   Tax Audit: No tax audit required if gross sales are upto 10 crores and 95% sales and expenses are digital payments. Helpful for start ups with large volume of turnover with net losses