During the Budget 2021 announcement today, Finance Minister Nirmala Sitharaman proposed a slew of measures to help startups and MSMEs grow, including incorporation of one Person Company without any restriction on paid-up limit. She stated that the government has extended the tax holiday for startups by one more year, providing a much-needed post-pandemic boost to the upstarts. According to Union Budget 2021-22, startups will get capital gains exemption by one more year to 31 March 2022. Startups also have one more year to claim tax holiday.

The government also proposed to incentivize incorporation of one-person companies, a move which will benefit startups and innovators. This move will allow such firms “to grow without restriction on paid-up capital and turnover, allowing conversion into any other type of company at any time, reducing residency limit for an Indian citizen to set up an OPC from 182 days to 120 days, and allow also non-resident Indians to incorporate OPCs in India,” FM Sitharaman said in her budget speech.

The existing provisions of Section 80-IAC of Companies Act, 2013, provide for a deduction of an amount equal to 100 percent of the profits and gains derived from an eligible business by an eligible startup for three consecutive assessment years out of 10 years at the option of the assessee subject to the condition that the total turnover of its business does not exceed Rs. 100 crore for an eligible startup incorporated on or after the 1 April 2016 but before 1 April 2021. According to the budget, it is proposed to extend the period of incorporation of such eligible start-ups till 1 April 2022. This amendment will take effect from the 1st April, 2021.

Presenting India’s first-ever paperless Budget 2021, FM proposed revising the definition of small companies by raising the capital base to Rs. 2 crore from the current limit of Rs. 50 lakh.

As of the last week of December, there were 41,061 government-recognized startups in India. Of this, over 39,000 startups accounted for 4,70,000 jobs, according to the Economic Survey 2020-21. With as many as 38 unicorns, with 12 of them coming up last year, India’s startup ecosystem is currently the world’s third-largest.

The steps are an addition to previous startup-focused measures announced by the government, including broadening their startups, simplifying regulations, providing income tax exemptions and setting up a Rs. 10,000 crore Fund of Funds run by Small Industries Development Bank of India (Sidbi). The government also recently approved the Startup India Seed Fund Scheme with a corpus of Rs. 945 crore. It is aimed at providing financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.