INTRODUCTION:

Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2024-25 on Tuesday, outlining various provisions aimed at supporting MSMEs, startups, easing business operations, enhancing FDI, and addressing long- and short-term capital gains. Below are the detailed highlights from the budget that are poised to significantly impact Indian startups, founders, employees, and MSMEs.

Key Highlights of the Union Budget 2024-25:

  1. Boosting the Startup Ecosystem:
    • In a significant move to foster the growth of startups and nurture entrepreneurial spirit in India, the government has abolished the angel tax for all classes of investors starting from April 1, 2024. This tax exemption is expected to encourage more investments in startups and reduce the financial burden on new businesses.
  2. Support for MSMEs:
    • The government has allocated a substantial central outlay of Rs 2 lakh crore aimed at generating employment, enhancing skill development, and creating various opportunities focused on MSMEs. This investment is expected to strengthen the MSME sector, which is a crucial component of the Indian economy.
  3. Enhancing Ease of Doing Business:
    • To further simplify the regulatory framework for Foreign Direct Investment (FDI) and overseas investments, the government plans to streamline existing rules and regulations.
    • The Insolvency and Bankruptcy Code (IBC) has proven to be a successful initiative, having resolved over 1,000 companies and directly recovered more than Rs 3.3 lakh crores.
    • The Centre for Processing Accelerated Corporate Exit (C-PACE) will extend its services to facilitate the voluntary closure of Limited Liability Partnerships (LLPs), significantly reducing the time required for closure.
  4. Development of the Space Economy:
    • The government has outlined an ambitious plan to expand India’s space economy fivefold over the next decade. To support this goal, a Rs 1,000 crore venture capital fund will be established. This initiative aims to foster innovation and growth in the space sector, positioning India as a significant player in the global space industry.
  5. Climate Finance Initiatives:
    • To support the country’s climate commitments and green transition, the budget includes provisions for developing climate finance mechanisms. These measures aim to enhance the availability of capital for climate adaptation and mitigation projects.
  6. Changes in Capital Gains Taxation:
    • The long-term capital gains tax (LTCG) on both financial and non-financial assets has been increased from 10% to 12.5%. Additionally, the short-term capital gains tax (STCG) on certain assets has been raised to 20%. These changes are expected to impact investors and their strategies significantly.
  7. Attracting Foreign Capital:
    • In an effort to attract more foreign investment, the corporate tax rate on foreign companies has been reduced from 40% to 35%. This reduction is intended to make India a more attractive destination for foreign investors and support the country’s development needs.
  8. Simplified Reporting for ESOPs and Foreign Assets:
    • Indian professionals working in multinational companies often receive Employee Stock Ownership Plans (ESOPs) and invest in foreign assets. Under current regulations, non-reporting of small foreign assets can lead to penalties under the Black Money Act. The new budget proposes that non-reporting of movable assets up to Rs 20 lakh will no longer be penalized, easing the burden on professionals.
  9. Changes to the Share Buyback Process:
    • Significant changes have been introduced to the buyback process. Income from share buybacks by companies will now be taxed as dividends for the recipient investor. This is a shift from the current regime, where the company pays additional income tax. The new provision will take effect from October 1, 2024.

These measures reflect the government’s commitment to fostering economic growth, simplifying regulatory frameworks, and supporting key sectors such as startups, MSMEs, and the space economy, while also addressing critical areas like climate finance and foreign investments.