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Union Budget 2021-22: Centre to incentivize incorporation of one-person companies

Ramya Patelkhana
·4-min read

Union Budget 2021-22: Centre to incentivize incorporation of one-person companies
Union Budget 2021-22: Centre to incentivize incorporation of one-person companies

01 Feb 2021: Union Budget 2021-22: Centre to incentivize incorporation of one-person companies

Finance Minister Nirmala Sitharaman has presented the much-awaited Union Budget 2021-22 on Monday at a time when the Indian economy strives to recover from the COVID-19-induced crisis.

While presenting the first paperless Union Budget, she announced that the government proposes to incentivize the incorporation of one-person companies (OPCs), which is being seen as a big booster for start-ups in India.

Here are more details.

Announcement: The move will benefit start-ups and innovators

In a move that will benefit start-ups and innovators, Sitharaman announced that the Centre plans to incentivize the incorporation of the one-person companies, that too without any restrictions of the paid-up capital as well as the turnover.

Moreover, the one-person companies will also be allowed to be converted into any other type of company at any time.

Details: Residency limit for incorporating OPCs reduced; NRIs will be allowed

During the Budget presentation, the Finance Minister said, "This will be a big boost for start-ups." She said the move will allow OPCs "to grow without restriction on paid-up capital and turnover."

Moreover, the residency limit for Indian citizens to constitute an OPC has been reduced to 120 days from 182 days. Also, Non-Resident Indians (NRIs) will be allowed to set up OPCs in India.

Fact: 'Will bring a more organized, regulated basis for smaller businesses'

Commenting on the Finance Minister's announcement, Bijal Ajinkya, Partner at Khaitan & Co., stated, "One-person company will bring a more organized and regulated basis for smaller businesses." She added, "The limited liability itself may be a booster for such entrepreneurs."

Small companies: Definition of small companies under Companies Act to be revised

Further, to ease the compliance requirements of small companies, Sitharaman proposed to revise their definition under the Companies Act, 2013.

The Finance Minister said it would be revised by increasing their capitalization threshold from not exceeding Rs. 50 lakh to not exceeding Rs. 2 crore. She said their turnover would be raised from up to Rs. 2 crore to up to Rs. 20 crore.

MCA-21: AI, machine learning, data analytics for launching MCA-21 3.0

Sitharaman also proposed to deploy artificial intelligence (AI), machine learning, and data analytics for making regulatory filings easier for start-ups and businesses in a revamp of the official portal of the Ministry of Corporate Affairs (MCA).

The government earlier said the Ministry would launch AI-based features in MCA-21 3.0 when the portal's Version 3.0 is introduced.

Fact: E-adjudication, simplified compliance management

Notably, MCA-21 3.0 is likely to have a range of features like e-adjudication, online compliance monitoring, ease of doing business, and single source of truth, among others. This is crucial, especially for start-ups, as MCA-21 shares crucial information to stakeholders like investors, regulators, and companies.

Tax holiday: Tax holiday for start-ups extended by one year

In another move to help start-ups recover from the pandemic's aftermath, Sitharaman said the tax holiday for start-ups has been extended by one year, to March 31, 2022.

She also announced the extension of the capital gains exemption for start-ups by another year.

These announcements would benefit India's start-up ecosystem—currently the world's third-biggest. As of December-end, there were over 41,000 government-recognized start-ups in India.

Migrant workers: Portal to capture data on migrant workers and provide benefits

Sitharaman also proposed to launch a portal to collect and maintain relevant information on gig workers and construction workers, among others, adding it will help in providing benefits to migrant workers.

Such information would help in formulating healthcare, housing, food, insurance, credit, and skill schemes for the migrant workers. She added social security would also be extended to gig and platform workers, too.

Fact: 'Minimum wages will apply to all categories of workers'

"Social security benefits will be extended to gig and platform workers. Minimum wages will apply to all categories of workers. Women will be allowed to work in all categories and also in night shifts with adequate protection," Sitharaman said during the Budget presentation.

Also see: Union Budget 2021 on February 1: Here are key expectations
Why Sitharaman's stimulus package has left stock market unimpressed
Coronavirus crisis: Government waives ATM withdrawal, bank balance non-maintenance charges
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