new Delhi. Finance Minister Nirmala Sitharaman has raised the expectations of Budget 2021, saying that this budget will be ‘unlike anything in the last 100 years’. However, there are still some cases whose budget in 2021 MSME and startups are expected to be improved. Not only this, in addition to the relief of taxes to taxpayers, simplification of GST is also expected from this budget.
According to the data released by the Ministry of MSME, there are around 68 lakh industry base registered MSMEs in India and a total of 6.3 crore MSMEs. MSME-related products account for 49.81 per cent of the total exports made during FY 2019-20 and the sector has employed 11 crore people in India.
It is estimated that there are currently around 30 unicorn Indian startups, out of which 18 are major foreign direct investment. According to the Commerce Ministry, there was a record USD 73 billion FDI in India during FY 2019-20. According to Startup India portal, there are over 40,000 DPIIT registered startups in India. These numbers reflect the level of importance and impact of MSMEs on the Indian economy and the importance of FDI for building unicorn startups in India.
Indeed, over the past several years, the Government of India MSME Ministry, Ministry of Commerce and Industry and Ministry of Finance have come up with various schemes and incentives to promote Make in India and local industries, MSMEs and startups, through various budgets. Talking about the major of these…
Schemes for specially registered MSMEs:
- Interest Subvention and Credit Support Program
- Solar Charkha Mission
- MSME Contact and Relations
- Khadi, Village and Coir Industry Development
- Amendment of MSME Act and extension of MSME definition to cover large number of enterprises
- Entrepreneurship and Skill Development Program
Benefits given to DPIIT to Startups registered under Startup India Initiative:
- Income tax and angel tax exemption for three years
- Patent application and IPR protection exemption
- self certification
- Easy winding up
- Easy public procurement criteria for startup
Expectations from Budget 2021
Easing FEMA legislation and inflows and outflows for foreign exchange funds within and outside India
The movement of all funds within and outside India must be done through rigorous RBI scrutiny, reporting and borders. These become an impediment to foreign investment in India as investors not only have to worry about existing compliance during inflows, but also when returning the original investment amount in the form of interest or dividend. Institutional investors and investors still have the resources to comply with this, however, at times it becomes a ‘deal breaker’ for small investors affecting small MSMEs / startups.
The same applies to compliance around the import and export of goods and services. Such as complaints about the regularization of export revenue and the required filing for foreign payments for import of services, including CA certification requirements, increased compliance time and making the business non-viable for small business.
The foreign exchange system has to be fully rectified to ensure that Indian MSMEs and startups can work seamlessly with global customers, suppliers, investors and other stakeholders and compete globally. Be able to
LTCG tax on unlisted shares, dividend taxes and additional surcharges
Companies, businesses and individuals pay income tax on their income. Again the capital gains tax (when capital increases over a period on the amount of tax paid) or dividend tax (on distribution of tax paid profit) are nothing but double taxation on the same profit. Many global trading centers such as Singapore do not have capital gains and dividend taxes at all.
These high taxes either induce domestic / foreign investors not to invest in Indian businesses or they force Indian business to move into a structure in which intellectual property (IP) and other main ownership are some other lower taxes. Moves to jurisdiction. In order to attract more foreign investors to India again, and to retain the talent and ownership of MSME and startup sector and other important intellectual property in India, the tax rate should be reduced and the double taxation attracts For example, the tax on capital gains and dividends must either go away or be drastically reduced. This will curb intellectual property and capital drain and attract more capital investment both domestically and overseas.
Simplification of GST and labor laws
GST laws are becoming more stringent rather than simplified with each passing day. As per the latest government notification, if the monthly taxable sales exceed Rs 50 lakh, then it is mandatory to pay 1 per cent cash (with some exceptions) of GST liability and set-off against input tax credit. Is not. The time limit for GST registration permission has also been extended with the requirement of physical verification of the office address by the GST officer. GST officers have also been granted additional powers to cancel GST registration in many cases. Many state governments are also working with audit and investigation of GST department as per the respective state GST laws.
These amendments and new requirements will not only increase time and compliance costs for MSMEs and startups but will also lead to harassment and corruption. MSMEs and startups are expecting more simplified and automated tax laws and not such complex and officer-driven laws.
ESOP tax on unlisted companies
Employee stock options plans (ESOPs) are not only a cost-effective tool for startups and MSMEs with limited financial resources and yet seek to tap the best talent in the industry, but also provide a sense of ownership and entrepreneurship for the company’s employees Increases
Shares of companies allocated under the ESOP scheme attract taxes in the form of perquisites (salaries) at the time of allocation of shares based on the difference between the fair market value (FMV) and the actual exercise price. However, unlisted shares do not have a market available for resale. Therefore, employees pay tax on such share valuation without obtaining direct cash flow and without the absence of short / medium term liquidity of such shares.
Source cut tax (TDS) has been postponed for such ESOP allocation for registered startups in Budget 2020. The startup industry and its employees hope to have riders removed and make them more inclusive. Also this benefit of avoiding taxes should be released to more MSMEs in the traditional sector and not just to registered startups.
We are confident that the government and its various ministries are working hard to make Budget 2021 the best in more than 100 years and lead to a rapid boom in the epidemic-stricken country and economy and accelerate long-term growth Have been. This is to make India an economic superpower and supply chain hub. We hope that these suggestions will also be heeded to reduce practical difficulties and ensure smooth global integration and competition.