Key takeaways for startups, MSMEs and ecommerce businesses from the Indian Union budget 2022

The Minister of Finance and Corporate Affairs of India, Nirmala Sitharaman, presented the Union Budget 2022-23 on February 1, 2022. We’ve put together some of the most relevant takeaways for startups, entrepreneurs, ecommerce businesses, and MSME owners from her shortest budget-related presentation yet.

Table of Contents

1. Tax holiday continues for startups

In view of the pandemic, the Finance Minister proposed a year’s extension to the eligibility period of incorporation for startups to avail the tax holiday. This tax benefit has been given with the aim of helping startup owners improve their liquidity and working capital pool.

Eligible startups incorporated between April 1, 2016 and March 31, 2023 (vs March 31, 2022 previously) can now avail of a tax exemption or angel tax exemption under sections 80IAC or section 56(2)(viib) of the Income-tax Act, 1961.

For more information on eligibility and for the application form visit the Startup India site.

2. Funding and investment could see an increase 

Citing that the Venture capital and private equity industry invested more than INR 5.5 lakh crores last year, the Finance minister proposed a few incentives to help scale this funding and investment in startups. 

One of them was ensuring more parity in listed and unlisted shares/assets with the capping of LTCG (long term capital gains) surcharge at 15% for both. Earlier unlisted equity investments had grades of surcharge of up to 37%. So this move is set to reduce this tax burden on angel investors or venture capitalists choosing to invest in unlisted startups. The finance minister also announced a one-year extension of the capital gains exemption for investment in startups, to encourage investments in startups.

Another move towards this was the proposal to set up an expert committee to holistically examine and ease points of friction faced by the private equity and venture capital (PE/VC) industry, in terms of regulatory and other issues.

All these efforts may make it easier for startups and new businesses to find funding.

3. New and wider avenues opened for startups

In her presentation of the union budget of India 2022, Nirmala Sitharaman also widened or opened new areas of interest for start-ups. Some of these areas, based on announcements scattered across her speech, include:

If you’re looking to start your own business or startup, these areas may be worth exploring.

4. Boost for MSMEs

Stating that the Emergency Credit Line Guarantee Scheme (ECLGS) had provided additional credit to more than 130 lakh MSMEs, the finance minister announced the extension of this scheme for one more year. More details on the scheme here.

The Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme, launched to offer collateral-free credit, would also be revamped and receive a fresh infusion of funds, as per the budget 2022 announcement.

Other programmes announced by the finance minister that Micro, Small & Medium Enterprises can benefit from include the RAMP (Raising and Accelerating MSME Performance) programme to be rolled out over the next 5 years, so keep an eye out.

5. Encouragement for domestic manufacturing

In order to encourage domestic manufacturing the 2022 union budget incorporated certain measures such as the concessional corporate tax extension for newly set up manufacturing companies and graded rate structures for custom duty. This is great news for those of you looking to create products to sell online.

6. Expect more ease of doing business 

Businesses owners will be happy knowing that the budget 2022 speech included mentions of several schemes and initiatives that will help businesses operate more easily.  These include “Ease of Doing Business 2.0” and “One nation, one registration” programs and “Digital Ecosystem for Skilling and Livelihood” (DESH-Stack) portal which will aid business operations with measures such as:

  • Digitization for improved transparency and ease of use
  • Interlinking of the ASEEM (Atmanirbhar Skilled Employee-Employer Mapping) Udyam, e-Shram and National Career Service (NCS) portals to create connected databases and improve efficiency
  • Standardization & streamlining of often overlapping compliance laws 
  • Helping drive skilling and reskilling to increase and improve available talent pool
  • Gati Shakti initiative for boosting logistics and warehousing, bringing down costs incurred

7. Digital assets, digital banking and payments in focus

The 30% tax on income from transfer of virtual digital assets (or crypto) may not have made everyone happy, but it certainly points towards the fact that the government is viewing things from the broader lens of the emerging virtual financial world of cryptocurrency. In fact, the finance minister of India mentioned that the government may even launch the “Digital Rupee” this year. So if you’re thinking about accepting cryptocurrency on your online store, or selling NFTs, this indicates that it may get easier and more formalised for you with the introduction of regulations.

If your business has an element of ecommerce, you would be happy to note that the government has also put its focus on boosting the digital economy. Measures that point towards this include the proposal to set up 75 Digital Banking Units (DBUs) in 75 districts and connect all post offices to the core banking system. This means that digital payments (through digital banking) could soon be a reality for people in every corner of India.

There you have it, the top 7 takeaways for entreprenuers, startups, ecommerce and MSME businesses from the union budget 2022!

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