Govt to incentivise setting up of ‘one person companies’ to boost startups

In a move that is likely to benefit startups and innovators, the government on Monday announced that it proposes to incentivise incorporation of ‘one person companies’ (OPCs). "This will be a big boost for startups," Finance Minister (FM) Nirmala Sitharaman said on Monday while presenting the Union Budget. The FM said that incorporation of OPCs will be incentivised by allowing such companies "to grow without restriction on paid up capital and turnover, allowing conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days, and also allow Non-Resident Indians (NRIs) to incorporate OPCs in India.”

In order to incentivise startups in the country, the government has proposed to extend the eligibility for claiming tax holiday for startups by one more year — till March 31, 2022. “Further, in order to incentivise funding of the startups, I propose to extend the capital gains exemption for investment in startups by one more year — till 31st March, 2022,” the FM announced. 

Among the budget expectations, startups had wanted the government to extend credit facilities, revise tax policy and have a less complex GST structure, as well as provide a thrust for digital innovation to incentivise home-grown startups. 

The Union government announced tax relief for startups in the previous budget also as part of its efforts to boost the ecosystem in the country. The Finance Minister last year also announced a five-year tax holiday on employee stock ownership plan (ESOPs) for startups.

Outlining the steps taken to support the MSME sector, the FM said Rs 15,700 crore has been provided to this sector, which is more than double of 2019-20’s BE (budget estimate).

“MSMEs and other user industries have been severely hit by a recent sharp rise in iron and steel prices. Therefore, we are reducing Customs duty uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels. To provide relief to metal recyclers, mostly MSMEs, I am exempting duty on steel scrap for a period up to 31st March, 2022,” the FM announced.