This article has been written by Hitansh Sharma, independent legal practitioner.
The Hon’ble Union Finance Minister Nirmala Sitharaman presented her maiden budget in the Parliament, announcing a slew of measures aiming to boost the economy and generate employment. In this Modi Government 2.0’s first budget presented by the first female Finance Minister in the country handling the Ministry of Finance charge full-time, there was a distinct focus on women empowerment, rural growth, infrastructure, digital economy and MSMEs. Aiming a 5 trillion dollar economy and outlining a 10-point vision for the next decade, this budget also reiterated the Government’s agenda to usher in labour law reforms, improve the job numbers and give impetus to the start-up ecosystem and entrepreneurship. The Finance Minister, in her budget speech, stated that the start-ups in India are taking firm roots and their continued growth needs to be encouraged.
Let us take a quick look at some of the announcements made in the budget on the labour/employment front and for boosting the start-ups and entrepreneurship sentiment:
Labour and employment
Rationalising of labour laws
The Finance Minister, in her speech, reiterated the agenda of the Modi Government to codify the labour laws into 4 compact codes. It was stated that this will ensure process of registration and filing of returns gets standardized and streamlined. Further, with various labour related definitions getting standardized, it is expected that there shall be less disputes. It is to be remembered that this major reform push gained momentum when the Government came out with drafts of these codes during its last tenure. The stakeholder comments were invited and the deliberations took place. However, the process came to a halt with the announcement of Lok Sabha elections and Code on Wages Bill had lapsed after the 16th Lok Sabha was dissolved. The Finance Minister has made it clear, in no uncertain terms, that this is on the top of the agenda for the Modi Government 2.0. It is pertinent to note that The Code on Wages Bill was recently approved by the Union Cabinet.
Pradhan Mantri Karam Yogi Maandhan
This scheme will provide pension benefits to retail traders and small shopkeepers. Taking note of the overwhelming response received by the predecessor of this scheme announced before the elections, the Finance Minister announced that this pension benefit will be extended to about 3 crore retail traders and small shopkeepers whose annual turnover is less than INR 1.5 crore under this new revamped scheme. Enrolment into the scheme will require only Aadhaar and a bank account and rest will be on self-declaration. Pradhan Mantri Shram Yogi Maandhan was launched on March 5, 2019, aiming at providing INR 3,000 per month as pension on attaining the age of 60 to workers in unorganized and informal sectors. According to the Government, about 30 lakh workers have joined this scheme already.
National Pension System
The Finance Minister stated that the Pension Fund Regulatory and Development Authority (PFRDA) implements and regulates the National Pension System (NPS) and Atal Pension Yojana through various intermediaries including, inter-alia, the NPS Trust. The Government has decided to take steps to separate the NPS Trust from PFRDA with appropriate organizational structure. This is being done keeping in view the wider interest of the subscribers and to maintain arm’s length relationship of the NPS Trust with PFRDA, the Finance Minister announced in her budget speech. Further, in order to give effect to the cabinet decision already taken to incentivise NPS, it is proposed to- (i) increase the limit of exemption from current 40% to 60% of payment on final withdrawal from NPS; (ii) allow deduction for employer’s contribution up to 14% of salary from current 10%, in case of Central Government employee; and (iii) allow deduction under Section 80C for contribution made to Tier II NPS account by Central Government employees.
The focus of the Modi Government on the Skill India Mission continues as the budget laid focus on skilled manpower and need to train the youth in upcoming sectors like artificial intelligence, robotics, etc. It was stated that the Government enables about 10 million youth to take up industry-relevant skill training through the Pradhan Mantri Kaushal Vikas Yojana. The Government also wants to prepare the youth to take up jobs overseas, and thus will increase focus on skill sets needed abroad including language training.
Start-ups and entrepreneurship
Exclusive TV channel for start-ups
An interesting announcement is made in this year’s budget as the Government has proposed to start a television programme within the DD bouquet of channels exclusively for start-ups. According to the Government, this will serve as a platform for promoting start-ups, discussing issues affecting their growth, matchmaking with venture capitalists and for funding and tax planning. The most interesting aspect is that the Government proposes that this channel be designed and executed by start-ups themselves.
Focus on new-age skills
This may not directly benefit start-ups. However, given the sectors Government wants to focus on, surely a better talent pool (to hire from) will be created for growing number of start-ups in upcoming sectors. Government wants to train a large number of youth in new-age skills like artificial intelligence, internet of things, big data, 3d printing, virtual reality and robotics.
The Finance Minister announced this measure for entrepreneurial push in traditional industries and to give a boost to rural economy. The Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship (ASPIRE) has been consolidated for setting up of Livelihood Business Incubators (LBIs) and Technology Business Incubators (TBIs), contemplating setting up of 80 LBIs and 20 TBIs in 2019-20 to develop 75,000 skilled entrepreneurs in agro-rural industry sectors. It was also announced that Government will support private entrepreneurships in driving value-addition to farmers’ produce from the field and for those from allied activities, like bamboo and timber from the hedges and for generating renewable energy.
Tax and other reforms
The Finance Minister stated that to resolve the so-called ‘angel tax’ issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department. In addition, special administrative arrangements will be made by Central Board of Direct Taxes for pending assessments of startups and redressal of their grievances. It will be ensured that no inquiry or verification in such cases can be carried out by the Assessing Officer without obtaining approval of his supervisory officer. The Finance Minister further announced that, at present, start-ups are not required to justify fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF) and this benefit will be extended to Category-II AIF also. Other announcements were relaxation of some of the conditions for carry forward and set off of losses in the case of start-ups and proposal to extend the period of exemption of capital gains arising from sale of residential house for investment in start-ups up to March 31, 2021 along with relaxation of certain conditions of this exemption. You may refer to Annex to Part B of Budget Speech (Direct Tax Proposals, Paragraph 3.3) for more information.
Stand-Up India Scheme
As per the government website, this scheme aims at financing SC/ST entrepreneurs and women entrepreneurs by facilitating bank loans for them. Considering the positive response to this scheme, the Government has decided to continue this scheme for the entire period coinciding with the 15th Finance Commission period of 2020-25. It was noted that the synthesis between stand up and start up with commercial banks playing the catalyst has brought a transformational change.
Support to women entrepreneurs
The Government is supporting and encouraging women entrepreneurship through various schemes such as Pradhan Mantri Mudra Yojana (PMMY), Stand UP India and the Self Help Group (SHG) movement. The Finance Minister announced that in order to further encourage women enterprise, the women SHG interest subvention programme will be expanded to all districts. Furthermore, for every verified women SHG member having a jan dhan bank account, an overdraft of INR 5,000 is proposed to be allowed. One woman in every SHG will also be made eligible for a loan up to INR 1 lakh under the PMMY.
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