Incentivising the startup ecosystem, the government on Monday extended the eligibility period to claim tax holiday and claim capital gains exemption for investment made in such firms by one more year.
Finance Minister Nirmala Sitharaman announced these measures in her Budget speech at the Lok Sabha.
"In order to incentivise start-ups in the country, I propose to extend the eligibility for claiming tax holiday for start-ups by one more year - till 31st March, 2022. Further, in order to incentivise funding of the start-ups, I propose to extend the capital gains exemption for investment in start-ups by one more year - till 31st March, 2022," she said.
She also said that the incorporation of One Person Companies (OPCs) will be incentivised by allowing OPCs to grow without any restrictions on paid-up capital and turnover.
She also proposed to allow their conversion into any other type of company at any time besides reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days. The Budget proposal also allows Non-Resident Indians (NRIs) to incorporate OPCs in India.
Commenting on the proposals, Fixcraft CEO Vivek Sharma said the budget has slightly opened the window for startups by allowing OPCs for NRIs.
"This might indirectly attract investors which is the need of the hour for the entire startups community. Further, incentivising OPC is going to help startups at an early stage. Extension of tax holidation for startups is definitely a step that was needed as a lot of entrepreneurs and businesses have been starving due to pandemic and this brings some relief to them," he said.
However, he said there was "definitely a wider scope" of financial support given that everybody is on the road to recovery.
Neeraj Tyagi, the CEO of We Founder Circle, said funding in the startup ecosystem has been dry in the last one year and extension of capital gains exemptions on startup investments and allowing NRIs to establish OPCs are "two announcements that might water the dry field" for entrepreneurs.