Startups Rejoice: Gets One More Year Extension For Startup Holiday Tax

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After going through a horrendous 2020 filled with a massive number of shutdowns and layoffs due to the COVID-19 pandemic, startups can now rejoice. The budget 2021 brought about a much-needed boost required to resume operations in a post-pandemic India.

Nirmala Sitharaman, Finance Minister has announced the extension of the tax holiday for startups by one more year. Along with that, Indian startups will also be able to avail an exemption on capital gains by another year till 31 March 2022 according to the Union Budget 2021-22.

However, the changes are applicable for Startups registered after April 01, 2016, but before April 01 2021.

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Now, that being said, industry experts believe this move will have a very limited and short-term impact on most startups as the majority happen to be loss-making.

Ankur Basal, Co-Founder and Director of BlackSoil, consider this as a good move on part of the GOI which is focussed on boosting the startup ecosystem in India but less impactful as most startups are loss-making.

The Indian Government, apart from these announcements, also proposed to incentivize the incorporation of OPCs aka one-person companies – a move which is being gauged to benefit startups and innovators in the country.

Sitharaman, in her budget speech, announced that One-Person Companies will be allowed to grow without any restriction when it comes to paid-up capital and turnover, they will be allowed to convert into any other type of company at any given time and any Indian citizen or non-resident Indians who has resided in the country for 120 days can set up an OPC in the country.

According to the Economic Survey 2020-21, there currently exists 41,061 government recognised startups in India as of the last week of December, out of which over 39,000 startups accounted for a whopping 4,70,000 jobs. India’s startup ecosystem is the world’s third-largest as it comprises of 38 unicorns, with 12 of them hitting the $1 billion valuation mark in the last year itself.

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All in all, this year’s budget announcements geared towards Indian startups are being interpreted as an effective addition to the Indian government’s previous startup-focused measured which it announced. Some of them were – broadening inclusion for recognising startups, providing effective income tax exemptions and setting up a Rs 10,000 crore fund of Funds run by SIDBI aka Small Industries Development Bank of India.

One must take note that prior to announcing the one-year tax holiday extension during the much-anticipated budget speech, the GOI quite recently also approved the Startup India Seed Fund which a corpus of a whopping Rs 10,000 crores.

Addressing the “Prarambh: Startup India International Summit“, Prime Minister Narendra Modi, on Saturday, said that it is aimed at providing financial assistance to Indian startups for proof of concept, prototype development, product trails and market entry.

He further added that going forward the Government is also inclined towards helping budding startups raise debt capital as well.

What are your thoughts about the extension of tax holiday for startups in India? Let us know in the comments down below. We will keep you updated on all future developments. Until then, stay tuned.

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