With the proliferation of new tech and digital businesses, India is quickly becoming a significant player in the international Startup scene. To put it another way, the Union Budget ’23 will open doors in many other fields. Significant efforts can be made to expand the ecosystem and make the vision of a $5 trillion economy a reality by harnessing the power of technology, with a particular emphasis on data and AI. Moreover, the Budget placed a significant focus on developing MSMEs and Startups, with the carry forward of losses on change of shareholding of companies extended to 10 years of incorporation.
One of the most significant budgets in recent history, particularly for Micro Small and Medium Enterprises (MSMEs) and Startups in India, is the Union Budget 2023, delivered by Finance Minister Nirmala Sitharaman on February 1, 2023. MSMEs are called the ‘growth engines of the economy’; the government has emphasised the importance of these sectors in driving the country’s economic growth and provided several incentives to help these businesses thrive. These sectors have faced several challenges recently, including access to finance, tax compliance, and a need for more government support. However, the 2023 Union Budget has brought much-needed relief for these businesses. This article gives a closer glimpse at some key benefits provided to MSMEs and Startups in the 2023 Union Budget.
Benefits for MSMEs
A very significant change brought about by the Union Budget 2023 is the allocation of 15,700 crore rupees for the MSME sector. This cash will assist the sector’s expansion through various efforts. Some examples of these projects include loan guarantee schemes, marketing and promotion of MSME products, and creating new products and technology.
- Vivad se Vishwas I – Relief for MSMEs
If a small or medium-sized enterprise (SME) failed to carry out a contract during the Covid era, the government or a government-owned enterprise (GOE) would reimburse 95% of the lost sum related to the bid or performance security, as outlined in the Budget. As a result, those micro, small, and medium-sized enterprises (MSMEs) having trouble making ends meet due to economic disturbances might feel some respite from this.
- Credit Guarantee Scheme: One of the biggest challenges MSMEs and startups face is access to finance. These businesses can expand, invest in new technologies, and hire more employees with sufficient capital.
The CGS for Micro Small and Medium-Sized Enterprises (MSMEs) has been suggested to be extended for a further three years, through March 2026, in the recently released federal Budget. Under the program, micro, small, and medium-sized enterprises (MSMEs) can borrow up to Rs. 5 crores without pledging any collateral. Thanks to the plan’s continuation, micro, small, and medium-sized enterprises (MSMEs) will continue to get financial support and easy access to financing without putting up collateral.
- Loan Facilitation: To facilitate the provision of loans to MSMEs in as little as 59 minutes, the Budget proposed the establishment of a new loan facilitation platform. The platform will streamline the application process for loans using cutting-edge technology, making it more accessible to micro, small, and medium-sized enterprises.
- Taxation Benefits: Tax compliance was a challenge for MSMEs and startups, who often needed more resources and expertise to navigate the complex tax laws in India. The 2023 Union Budget has proposed several tax benefits for these businesses, which will help them save on tax costs and reinvest the savings into their businesses.
Increasing the threshold for the composition scheme from Rs. 1 crore to Rs. 5 crores will ease the tax compliance burden on micro, small, and medium enterprises. Furthermore, the government has proposed raising the Presumptive Taxation Scheme’s minimum taxable income from Rs. 2 crores to Rs. 5 crores. As a result of these reforms, small and medium-sized enterprises (SMEs) will have less of a distraction from their core business operations due to taxation.
- Technology Upgradation: The Budget proposed a scheme to assist micro, small, and medium-sized businesses (MSMEs) in implementing affordable and cutting-edge technological solutions that boost their productivity, efficiency, and ability to compete in the international market.
- Introduction of Entity DigiLocker:
To facilitate the digital application of loans for MSMEs and the storage of documents in a digital format, the Union government would establish a DigiLocker digital document storage capacity. It will allow storing and sharing of documents online securely with various authorities, regulators, banks, and business entities. This is an excellent initiative for India’s Start-up scene to protect its credentials and should stimulate even more foreign investment.
- MUDRA Scheme: Another essential measure proposed in the Union Budget 2023 is the expansion of the scope of the Micro Units Development and Refinance Agency Ltd. (MUDRA) scheme. The MUDRA scheme provides loans to micro and small enterprises, and the government’s proposal to expand the scheme’s scope will provide additional funding to MSMEs, helping them grow and create new jobs.
Benefits for Startups
Start-ups in India encounter numerous obstacles that impede their growth and success. The Union Budget 2023 includes measures to address these issues and assist startups in overcoming them.
- Financing: It can take a lot of work for new enterprises to secure initial investment. The Budget proposes establishing venture capital funds to give equity financing to Start-up businesses. Under the Startup India initiative, the Fund of Funds for Start-ups (FFS) scheme, Startup India Seed Fund Scheme (SISFS) and Credit Guarantee Scheme for Start-ups (CGSS) are implemented to provide capital at various stages of the business cycle of a startup.
Rs 1,000 cr has been allocated for Startups, out of which Rs 283 cr is designated for the Startup India Seed Fund Scheme (SISFS), which would offer seed capital to enterprises in their formative years. Because of this, new enterprises will have a less difficult time securing the capital they need to expand.
- Tax Exemptions: Start-ups need help paying taxes due to complex laws and regulations.
The government has also proposed to provide tax incentives for Start-ups. Start-ups incorporated after March 31, 2023, with a turnover of less than Rs. 25 crores, will be eligible for a tax holiday of three years, i.e. till March 2026. This will provide startups with the capital they need to invest in new technologies, hire more employees, and expand their operations.
The government has proposed to ease norms for start-ups by extending the benefit of carrying forward losses to 10 years, and extending the date of incorporation for income tax benefits to start-ups from 31 March 2023, to 31 March 2024. The government provides the benefit of carrying losses on change of shareholding of start-ups from seven years of incorporation to ten years,
- Skilled Workforce: Finding qualified personnel is difficult for new firms.
The government has also proposed the establishment of a National Recruitment Agency (NRA) to help MSMEs and Startups find the right talent. The Startup community in India will gain from the government’s focus on young skill development, as this will increase the availability of qualified personnel. In addition, Startups will be able to expand their operations due to this solution to the problem of obtaining qualified employees.
- Incubation Centres: Many new-aged Startups are based on a brilliant concept but need more financial education and resources to flourish in the market.
The formation of incubation centers around the country was proposed as part of the Budget to assist and direct new firms. The Centers will help new businesses by providing them with the resources and information to move their ideas forward.
- Ease of Doing Business: Start-ups can overcome numerous obstacles when establishing and operating a business in India. These include lengthy and complicated registration procedures and a need for a streamlined clearing process.
Several proposals in the Budget are intended to improve ease-of-doing business for new-age start-ups. For example, the government is considering establishing a Start-up India Hub to serve as a central resource for entrepreneurs in the country. In addition, the government has suggested creating a National Start-up Fund to aid new businesses financially.
There is a forward-looking, optimistic vibe to the Union Budget for 2023. The government has recognised the importance of MSMEs and startups in the growth and development of the Indian economy. Accordingly, the Union Budget 2023 proposes several actions to encourage entrepreneurship in the country by providing financial support, streamlining processes, and reducing red tape. Given that India is home to the third-largest concentration of Start-up enterprises globally, it is unsurprising that the Budget favours MSMEs and startups. This unquestionably offers these businesses new avenues for expansion, especially in the tech industry, by proposing reforms allowing more accessible access to financing, lower tax obligations, and more significant opportunities to embrace new technology.