By – Mansi Singh & Pratik Bhat
India’s Finance Minister last week announced the annual Budget focusing on seven priorities, i.e., inclusive development, last-mile delivery, infrastructure and investment, unleashing the potential, green growth, youth power and financial sector. Notably, the government increased its capital expenditure by 33% this year to Rs. 10 lakh crore (USD 122.3 billion), i.e., 3.3% of the gross domestic product (GDP).
The Budget acknowledged that as ‘growth engines’ of the Indian economy, the micro, small and medium enterprises (MSME) sector provides the maximum employment in the country, creating over 111 million jobs, and accounts for around 30% of the GDP. Further, the startup ecosystem has also been a catalyst for growth in the past couple of years and the government has been promoting new startups as part of its vision of making the country self-reliant. India is now the third largest ecosystem for startups globally, and ranks second in innovation quality among middle-income countries.
Recognizing the importance of MSMEs and startups, the Budget for 2023-2024 has focused on the following:
Increased availability of collateral free credit
A revamped credit guarantee scheme is to start on April 1, 2023 with a corpus of Rs. 9,000 crores (USD 1.1 billion). This will enable additional collateral-free guaranteed credit of Rs 2 lakh crore (USD 24 billion). Further, the cost of the credit will be reduced by about 1 per cent. Supplemental collateral-free credit is expected to aid MSMEs in meeting the challenges posed by the pandemic and allow them to continue to thrive and create employment opportunities.
Reducing compliance burden
To promote ease of doing business, over 39,000 compliances are being reduced for companies and nearly 3400 statutory provisions will be decriminalized.
Enabling more units for presumptive taxation
Micro-enterprises with a turnover up to Rs. 2 crore (USD 244,000) can avail the benefit of presumptive taxation. Taxpayers whose cash receipts are not more than 5% may enjoy an enhanced limit of Rs. 3 crore (USD 367,000). Under presumptive taxation, small businesses are not required to maintain their books of account and get their accounts audited. This will provide relief from tedious tax filing processes.
Tax concessions for startups
Extension of the date of incorporation for income tax benefits to startups from March 31, 2023, to March 31, 2024.
The benefit of carrying forward losses on change of shareholding of startups has been extended from seven years of incorporation to ten years.
Post-pandemic, a lot of startups were struggling for survival and still are. These concessions will provide relief to many.
Refund of forfeited deposit
As an additional relief to MSMEs, a refund of 95% of any forfeited deposit relating to a bid with the government/government undertaking will be provided if such forfeiture was due to the MSME’s failure to perform its contracts during the pandemic. The move is expected to benefit entities who don’t have access to institutional financing and have had their capital blocked as bid fee or performance guarantee due to defaults triggered by the pandemic.
In order to further expand the digital ecosystem for skilling, a unified Skill India Digital Platform will be launched enabling demand-based formal skilling, linking with employers including MSMEs, and facilitating access to entrepreneurship schemes.
Boost to Artificial Intelligence
Realizing the vision of ‘Make A-I in India and Make A-I work for India’, 3 centers of excellence for artificial intelligence will be set-up in top educational institutions. Leading industry players will partner the institutions in conducting interdisciplinary research, develop cutting-edge applications and scalable problem solutions in the areas of agriculture, health and sustainable cities. This will unleash innovation and research and is expected to encourage startups.
Budget 2023 has been encouraging for start-ups in several aspects such as extending the sunset clause for start-up tax exemption and increasing the number of years for carry forward and set-of off loss. The proposed initiatives are expected to encourage young entrepreneurs and the various pro-MSME measures are aimed at helping small businesses grow and expand. The reforms will enable creation of more jobs, stimulate economic growth and encourage innovation in the country.