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Budget Outlook for 2021

As we are nearing the 2021 Budget Announcement, the curiosity level are off the roof as to what Finance Minister Nirmala Sitharaman has to offer this year. The D-day being February 1, all the segments have particularly highlighted their prime concerns and requirements well in advance. Let us look at a few of them:

1.Healthcare Startup Outlook:

As briefed by the Co-founders and Directors of Continua Kids – Himani Khanna and Puja Kapoor

The professional and personal expectations from the government are usually high every year as the budget announcement dates come closer. The year 2020 has been full of learnings and we have learnt to cut down expenses to the minimum and more importantly to keep the organization running with the existing resources. We earnestly count upon the government to invest all efforts in bringing our economy back on track once an effective vaccine is made known.

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There are quite a number of startups that were established with a genuine vision and creative ideas, but floundered due to various reasons related to funds and investments. Hence, having gone through the drill ourselves, we as a startup would like to look at funding avenues that are possible if the government would include startups in under the MSME category. We are positive that our economy will pick up pace and are anticipating consideration under the mentioned category for technology and healthcare startups.


2.Startup Perspective:

A) According to zingbus CEO and Co-founder Prashant Kumar – The travel sector suffered tremendously in the last year. Though the business is picking up gradually now, the climbing diesel prices have made it difficult for bus operators to salvage even the EMI of the buses, so making profits is an even distant prospect. In lieu of safety concerns, fleet operators will be able to invest considerably in safety measures (As enforced by the govt) if the government could reduce the diesel prices or toll/road taxes. Travelers will feel more confident with the safety measures in place and will eventually result in higher demand. We are of the view that, government needs to promote standardization of rules and taxes consistently across the space. This initiative will be a boon to the government and digitally sound players as it will help secure more GST for the authorities.

B) According to Neeraj dubey – Partner, Corporate Law, Singh & Associates-The 2021 Parliamentary Budget hearing by the Finance Minister is one of the most awaited, owing to the brunt that our economy has faced because of the 2020 pandemic. As interesting as the budget may be for all concerned, the primary focus of this document is on the expectations from the Budget 2021 of a couple of specific sectors that have been affected by COVID-19 in terms of ebbing investments, subtracted compensations, reduced human capital, etc. The Budget should consider the plight and take initiative to alleviate their issues by taking necessary measures.

1. Suspension of Basel Norms for a period of 3 years: The lending propensity of banks to startups has dwindled due to COVID-19 impact. Banks need flexibility in lending, which is possible only if the Basel Norms are suspended temporarily. MSME loans in India are linked to corporate loans which require credit rating. Ratings are assigned by rating agencies based on the market base of a business, which implies that a small enterprise would have a negligible market base. This means a higher interest rate and it would affect bank’s lending flexibility. In this background, the start-ups hit by covid-19 must be able to avail enough borrowings in order to function. Though RBI had permitted reduction in margin to recalculate Drawing Power for working capital facility and simultaneously banks have permitted ad-hoc fund-based facility up to 10% of fund based limits under the Emergency Credit Line Guaranteed Scheme, these measures would end by March 31, 2021 and would require an extension.

2. Reduction of compliance burden: Start-ups have been burdened with arduous compliances under different laws that impacted their operations. Relaxation of stipulations concerning the appointment of independent directors and women directors, and appointment of key managerial personnel under the Companies Act is a step forward in this direction. Compliances under Foreign Exchange Management Act, 1999 must also be streamlined. At present, all inflows and outflows of funds into and outside India are scrutinised rigorously by RBI and need to conform to certain reporting standards. Adherence to such strict requirements affects the flexibility of start-ups to work seamlessly with global organizations. Therefore, there is a need to simplify the compliances so that the start-ups can compete globally. What is also required is the relaxation of the filing fees for start-ups for most of the forms including levying of any additional fees.

3. Measures to increase FDI: The start-up has seen a reduction in the inflow of foreign investments this past year. Necessary measures need to be taken to attract more investments in key areas. Uniform policies across the nation must be brought in so as to ensure a level playing field for all the players.The flow of capital to manufacturers must be streamlined. Easy availability of capital also needs to be ensured.

4. GST Reforms: Reduction in GST rate would encourage the start-up sector to leverage professional services for business growth and get back on track with their operations. At present, the GST rate on most professional services is 18 percent, which does not give much manoeuvring room to the start-ups. The government has also notified that if the monthly taxable sales of a company are more than 50 lakhs, they shall be obligated to pay 1 per cent of their GST liability in cash. Further, this cannot be set-off against input tax credit. Enterprises are also required to get their offices physically verified by a GST officer.All these requirements increase the compliance costs for start-ups.

5. Tax Reforms: One major tax reform which needs to be undertaken is to annul the payment of capital gain taxes or dividend taxes. Since enterprises already pay income tax on their income, capital gain tax and dividend tax essentially end up being double taxation on the same profit. Numerous global business centers have done away with these taxes in a bid to attract more foreign investment. Deferred TDS requirement for Employee Stock Option Plans/ESOP also needs to be reformed and be made more start-up sector friendly.

Centralized GST Registration perspective: As per Smita Singh, Partner Indirect Tax, Customs & Trade, Singh & Associates

“Currently there are 7 rate slabs for goods (0%, 0.25%, 3%, 5%, 12%, 18%, 28%) and 5 rate slabs for services (0%, 5%, 12%, 18%, 28%). In addition, Compensation Cess applies on select goods. Government should consider converging the existing band of GST rates to three in line with international standards. This will help resolve interpretation issues, reduce complexity and probability of disputes.” With the introduction of the decentralized registration process, the cost of compliance and business process development has elevated. The concept of centralized registration for services as prevalent in the past service tax regime should be contemplated under the GST regime as well. This will smoothen the business proceedings.

“India needs to attract FDI in Research and Development activities ('R&D') as India needs more cutting edge technology. Receiving prototypes, semi developed tech samples from abroad and Testing activity plays a pivotal role while conducting R&D activities. Such R&D activities are denied to be treated as export of services. Instead taxed under [email protected]%, as the place of supply by virtue of section 13(3)(a) of IGST, is the location where the services has been performed i.e. India in this case. This is making the R&D activity less competitive and many companies are shying away from further making an investment in India. It is recommended that IGST law may be suitably amended to notify that the place of supply of R&D services provided to foreign service recipients, shall be the place of effective use and enjoyment of service i.e. location of the service recipient,” says Smita Singh

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