Budget 2020 highlights for the startups in budget

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From tax exemption adjustments to boosting logistics and infrastructure growth, this budget had a lot to offer for MSMEs as well as startups. These nine highlights will help you understand the latest budget allocations and changes in the startup space.

1. No audit examination for businesses with an annual turnover of up to ₹5 Cr

Earlier, any business with an annual turnover of ₹1 Cr would have to maintain and get their books of accounts examined by an external auditor. To help reduce the compliance burden and encourage online payments, the government has raised the threshold to ₹5 Cr.

2. App-based invoice financing for MSMEs

To ensure the MSME sector has enough funds available for operations, the government has proposed to launch an app-based invoice financing loan product that could help small businesses with their cash flow problems.

3. RBI to consider extending debt restructuring scheme until March 2021

The MSME sector was expecting a distressed fund to help bail them out of the dire financial situation. The Sitharaman budget obliged by urging the RBI to extend the debt restructuring scheme to March 2021.

According to Sitharaman, over 500,000 MSMEs benefitted from the debt restructuring scheme launched last year. The restructuring was a one-time scheme that allowed defaulting MSMEs to revise the loan tenor and interest rate for up to ₹25 Cr.

4. ₹27,000 Cr allocated for GeM development

The Government eMarketplace was introduced in the 2019 budget to have a one-stop platform to procure goods and services for all government needs. In budget 2020, Sitharam mentioned there were 3.24 Lakh vendors on the platform that the government has been sourcing from.

For this, a hefty sum of ₹27,300 Cr has been allocated to the development of GeM and the businesses onboard the platform.

5. New seed fund for startups + investment cell for general business development introduced

Two new funds are proposed to be set up for startups and business development in general. In the 2020 budget speech, Sitharaman mentioned that the seed fund would allow new and early-stage startups to access the funds to grow.

Speaking of the investment cell, the finance minister said that this would govern the overall development and ease of business for entrepreneurs in the country.

6. No tax on profits for startups with turnover below ₹100 Cr

To give the startup community a tax relief, the budget 2020 outlined that any startup with a turnover of below ₹100 Cr will not have to pay tax on profits for a period of up to 10 years. Earlier, this timeline was for 7 years.

7. Startup ESOPs tax payments deferred for 5 years

As several startups use ESOPs or employee stock options to attract and retain talent in the company, Sitharaman said that the tax on ESOPs becomes a burden on these companies. The tax burden also affects cash flow thereby hampering growth and operations.

To ease this, the budget 2020 has proposed to defer the payment of ESPOs tax for 5 years.

8. Aadhaar-based GST verification & QR codes in invoices

Sitharaman opened the budget speech with a mention of simplifying GST returns for businesses. While not too many details were disclosed, the finance minister said Aadhaar-based technology will be used to verify and check fraudulent GST filings.

Additionally, dynamic QR codes will be available in GST invoices for customers to make online payments.

9. Reduce the TDS rate for startups

Startups have to currently face TDS (tax deducted at source) rate of 10% on the revenue. This implies an effective post-tax profit rate of 33.33% to 45%. This affects the working capital of startups as a number of them don’t make profits and they need to wait 6-12 months after filing their returns to get their refund, further hurting working capital for startups.

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