The 2021 budget increases the financing of national start-ups and facilitates the raising of capital by extending the capital gains exemption

Indian Union Budget 2021-22: India has maintained a continued focus on the start-up ecosystem in a way that favors start-up entrepreneurs. Over the years, various measures have been taken to facilitate business start-ups in India. This budget also responds to the needs of this growing sector, including by extending the tax holiday for one year under section 80-IAC of the Income Tax Act, 1961 (“The Income Tax Act, 1961). information technology ”), so that start-ups incorporated until March 31, 2022, are eligible for this exemption. Article 80-IAC of the Informatics Act provides for a one hundred percent deduction from the profits and gains made from the business by an eligible start-up incorporated until March 31, 2022 (previously it was the March 31, 2021) for 3 consecutive evaluations over 10 years.

In addition, the window to apply for exemption from tax on capital gains resulting from the transfer of residential property owned by an eligible assessed person when those gains are invested in start-ups has also been extended until March 31, 2022 (previously it was March 31, 2021). This extension will encourage national investments in start-ups, thus facilitating the raising of capital for start-ups.

The Minister of Finance Nirmala Sitharaman, during the presentation of the speech on the budget of the Union 2021, proposed to encourage the formation of one-person enterprises (“UCIs”) by allowing UCIs to be formed without any restriction on paid-up capital and turnover. It also allowed the conversion of UCIs into any other type of company at any time and without any restriction. It has also been proposed that the residence limit for an Indian citizen be reduced for the establishment of mutual funds from 182 days to 120 days and that even non-resident Indians be allowed to incorporate mutual funds in India. This amendment reduces the burden of compliance and provides an incentive for start-ups to set up a business in India.

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In addition to the legislative proposals above, the announcement regarding the support for the development of a world-class Fin-Tech hub at GIFT-IFSC will also allow start-ups in the fintech ecosystem to obtain the required infrastructure to do so. advance fintech innovation. The allocation of INR 1,500 crore for a proposed program that will provide a financial incentive to promote digital payment methods and the establishment of the National Language Translation Mission, will add the range of opportunities to which the start-up ecosystem -up can participate.

While some relief from provisions such as angel tax and clarification of the applicability of interest on deferral of payment of perquisites tax when the employee exercises options was also expected purchase to receive shares, the changes made in the 2021 Union budget are a welcome initiative that will help the growth of startups in India.

Ritesh Kumar is the partner of IndusLaw. The opinions expressed are those of the author.