The Finance Minister of India, Nirmala Sitharaman recently introduced the Union Budget for the financial year 2020-21, and since then the media is abuzz with the amendments introduced. While there was some relaxation introduced in the tax rates for individuals, the budget had in a lot to offer for small-scale businesses and the start-up community. We are all aware of the up-downs in establishing a successful start-up, or getting funding for growing your small-scale business, but what we are yet to understand is the solution to these difficulties. Well, the 2020-21 budget serves the equation right to quite an extent. Let’s understand how the Sitharaman budget will be affecting the start-up and small-scale business community.
One of the key highlights of the budget was to solve the biggest hurdle in a start-ups way to success, the funding. Trade finance companies in India often tend to get skeptical about giving loan for business to small-scale industry which poses as a big problem. The government has proposed to provide early-funding or seed-finding as it is called, to start-ups in order to support new ideation in the country and provide a shoulder to early-stage start-ups. This is a way to promote start-ups in the industry and help the GDP of the country grow to an extent.
GST is looked upon as a beneficial move that has played an important role in defining the threshold and composition limits for small-scale businesses. As per government records, GST has helped consumers and businesses to quite an extent. The report says in the past two years 60 lakh new taxpayers were added, nearly 40 crore returns were filed, 800 crore invoices were uploaded, and 105 crore e-way bills were generated. Looking at these ever-growing stats, the government has decided to introduce a new and simplified return system w.e.f April 1, 2020. Also, various new technologies like Artificial intelligence, Internet-of-Things (IoT), 3D printing, drones, DNA data storage, quantum computing, etc., will be introduced for the ease of small-scale businesses.
A major concern for start-ups is the working capital credit. With the introduction of Credit Guarantee Trust for Medium and Small Entrepreneurs (CGSTME) Scheme, the government aims at providing sub-ordinate debt to entrepreneurs, to be counted as quasi-equity, for benefitting such businesses to grow further. This way, getting business loan in India will become quite an easy task for start-ups.
The start-up ecosystem was anxiously looking towards some relaxation in ESOPs taxation. Being on a building stage start-up and small-scale businesses look forward to attracting new talent, but the ESOPs taxation hampers the cash-flow of the business. The government has announced of deferring taxation while additionally reducing the tax burden of companies, allowing eligible start-ups to deduct 100% of its profits for three consecutive assessment years out of seven years.
These were some of the major changes introduced by the government that can greatly affect the small-scale business industry. It will be interesting to see whether these will serve as a growth opportunity & support the start-up ecosystem. Let us know what you think of the amendments.