In her maiden Budget presentation, India’s first woman Finance Minister, Nirmala Sitharaman did a stellar job in presenting the roadmap for the coming few years under the Modi 2.0 regime. She called for “reform, perform and transform” at the beginning of her Budget speech and delivered on all three fronts.
While this Budget was expected to be an extension of the Interim Budget presented earlier this year in February, the Finance Minister did have quite a few big-bang announcements to make for the citizens as well as businesses of India.
In what will come as a relief for startup founders and investors, the government proposed a way to resolve the much-disputed angel tax issue. Under the new guidelines, startups and investors will not be subject to angel tax scrutiny as long as the required documents have been presented. This is a welcome move, especially when it is followed by the widening of the definition of startups and increasing the age cap from 7 to 10 years. This proposed change will encourage investors to put in their money in startups and enable new companies to come up as well.
To get higher investments in startups, the Finance Minister also extended the period of exemptions for capital gains from the sale of a house if the gains are invested in a startup. Interestingly, the government also plans to start a TV channel exclusively for startups.
In the digital payments space, the two Budget announcements that caught our ear was the new payment platform for MSMEs and the waiving off of MDR charges on digital payments. The payment platform will allow micro, small and medium enterprises to file bills easily and make timely payments. We expect this platform to greatly ease the processing time for MSMEs.
The proposal to remove MDR charges for small businesses is a big move by the government to promote digital payments. Businesses with an annual turnover of more than Rs 50 crore will have to provide digital payment options to their customers. To make sure that these businesses are properly incentivized to do so, the government plans to scrap merchant charges on these payments. These costs will be absorbed by the RBI and banks. This government has taken extensive steps in the past as well to boost digital transactions and this is another welcome step in the right direction.
One more step in the same direction is the proposal to levy 2% TDS on cash withdrawals of over Rs 1 crore made in a year for business payments. Digital payments on the consumer front are one end of the spectrum, it’s encouraging to see that the Finance Minister has taken initiatives to push digital business-to-business payments as well.
While this may seem like a harsh move for some businessmen, the government did attempt to show that it has the interests of businesses in mind by slashing the corporate tax rate to cover 99.3% of all companies in India. The annual turnover cap for the 25% corporate tax slab was raised from Rs 250 crore to Rs 400 crore.
One the whole, we found the Budget to be a nuanced one. The Finance Minister was able to tick the right boxes for the economy. While the micros might be challenging at the moment, the macros are in place for the Indian economy to grow to reach the $5 trillion target the government has set for itself.
This article was first published in The Financial Express.