Union Budget 2023: Key Highlights for Startups, SMEs, and Businesses

Finance Minister Nirmala Sitharaman tabled the Union Budget 2023-2024. Like previous Union Budgets, this fiscal year focuses on Inclusive Development (financial inclusion of small Businesses and support ease of doing business), promoting Public-Private Partnerships, Skilling (teaching-upskill), and setting off medium to long-term national development programs. Here is a roundup of key highlights of the Union Budget 2023.

Key Union Budget 2023 Highlights 

The ease of doing business just got easier:  

• More than 39,000 compliances were reduced, and over 3,400 legal provisions were decriminalized. Govt introduced the Jan Vishwas Bill to amend 42 central acts to further trust-based governance at all levels. Decriminalizing offenses in this context means a specific number of minor economic offenses which were earlier punishable with imprisonment will now be a penalty that a governing body would levy with revised fines and penalties.
• The National Data Policy will allow access to anonymous data to create risk-based profiles to further the creation of adaptive KYC for Digital India. Government bodies will leverage Business PAN as the key identifier for assessing and accessing company data. It will reduce the complexity of doing business as it will reduce the usage of over 13 different business IDs, such as EPFO, ESIC, GSTN, TIN, TAN, and PAN, used to apply for various government approvals.

MSMEs Unbound

 Union budget 2023 focused mainly on the Micro, Small, and Medium Enterprises (MSMEs) sector. 

• FM Nirmala Sitharaman declared the Vivad Se Vishwas scheme for failing MSMEs. MSMEs will receive 95% of the performance security from the government under this scheme in cases of failure to execute contracts.

• Another big step is to enable timely payments to MSMEs. A deduction for payments made to MSMEs will only be allowed when it is paid off.

• Extension of ECLGS To focus on the hospitality sector, the Finance Minister announced the extension of ECLGS up to March 2023. The Emergency Credit Line Guarantee Scheme (ECLGS) was launched amid the Covid-19 pandemic to help MSMEs cope with pandemic losses and was extended up to March 31, 2022. Considering the following aspects, the ECLGS will be extended up to March 2023, and its guarantee cover will be expanded by Rs 50,000 crore to a total surface of Rs 5 lakh crore.

• Govt. will Revamp Credit Guarantee Trust for small micro-enterprises scheme (CGTMSE) with an additional infusion of 9000 Cr. It will allow for two lakh crores of rupees in collateral-free guaranteed credit. Furthermore, credit costs will be reduced by about 1%.

• For presumptive taxation of small businesses and professionals:
  • The turnover limit for small businesses was expanded to Rs 3 crore from earlier Rs 2 crore, 
  • For certain professionals, it was broadened to Rs 75 lakh from earlier Rs 50 lakh.
    
    Presumptive taxation can only be used when the value of cash receipts is at most 5 percent of the total value of the receipts.  Small businesses and professionals need not maintain their books of account and get their accounts audited, which relieves tedious tax filing exercises.

• Reduction of customs duty on specific items and customs duty exemption on iron and steel scrap will contribute to the growth of MSMEs.

• The government extends customs duty exemption to capital goods and machinery imports used to manufacture lithium-ion cells for EV batteries.​​ This cost drop will aid electric vehicle growth and help businesses produce EVs at a lower manufacturing cost.

• The government extended the scope of the current DigiLocker to assist innovation in the fintech industry with Entity DigiLocker. Soon, Entity DigiLocker will allow MSMEs, companies, and charitable trusts to not only store but also share documents securely with authorities, regulators, banks, and other business entities.

Extended Tax holidays and a little more for StartUps

The Centre announced tax holidays along with many regulatory changes for Startups. They will be listed below:

• FM Sitharaman extended the Tax Holiday Scheme for startups till March 31, 2024, which means that startups incorporated till the latest date next year can avail of tax benefits. The tax holiday scheme was earlier available for startups incorporated till March 31, 2023. Other Tax benefits are that the eligible start-ups incorporated before 1 April 2024 also stand to enjoy these tax measures, which are deferral of ESOP taxation under Section 192(1C), relaxation on carry-forward, and set-off of losses under Section 79, angel tax exemption.

• The Budget 2023 provided relief to startups by giving the benefit of taking forward losses on a change of shareholding of startups from seven years to ten years. The condition of continuity of a minimum of 51% shareholding to offset carried-forward losses is relaxed for eligible startups if all company shareholders continue to hold those shares.

• Govt. is widening the scope of Angel Tax to include non-resident investors. Levy of angel tax in the hands of private companies where consideration for issue of shares is higher than fair market value.  
  • As per the said section, the scope of this angel taxation specifically included only residents thus far.  
  • However, the budget proposes to omit ‘resident’ from the said section with effect from 01 April 2024, thereby widening the ambit of taxation in the hands of startups to include investment received from non-residents.

• Despite rapid modernization, India is deeply an agriculture-based economy. However, there are still a lot of relevant pain points within the sector that need to be solved to allow the industry to flourish. To facilitate this:
  
  • The government has created an Agriculture Accelerator Fund that will encourage new solutions and startups within the space and create a platform to promote information sharing amongst farmers.
  • Because of increased emphasis on digital payments, Govt. proposed the digitalization of 63,000 primary agricultural credit societies through an investment of INR 2516 crores through the Digital Agriculture Infrastructure Scheme.
  • Disease infestation has been a dire problem affecting 35% of total crop production. The Atma Nirbhar Clean Plant Program, with a budget allocation of Rs 2200 crore, will offer farmers access to disease-free planting material and other facilities.

• The government has taken several steps to promote startups in the country. Under the Startup India initiative, the Fund of Funds for Startups (FFS) scheme, Startup India Seed Fund Scheme (SISFS), and Credit Guarantee Scheme for Startups (CGSS) are implemented to provide capital at various stages of the business cycle of a startup.

• Green power was at the forefront of the 2023 Union Budget. The government is particularly keen on promoting solutions and encouraging people to avoid using non-green energy solutions. Govt. announced numerous policies to promote less disastrous alternatives - The National Green Hydrogen Mission with an allocation of Rs. 19,700 crores and 35,000 Cr. for the energy transition.

• There have been few technological enhancements as pivotal as AI. Recognizing the sheer value that greater integration of AI can add to the economy, the government will create a National Data Governance Policy that will allow access to anonymized data and set up three AI research centers.

Indirect Taxes and Custom Duties were relaxed

Indirect taxes like GST and Customs form a significant part of the government's revenue and deeply impact daily lives and manufacturing costs. Here below are the changes announced in the Union Budget 2023:

• Goods and Services Tax: ITC will not be available regarding goods or services used for activities relating to corporate social responsibility.

• Customs duty: As part of rate rationalization of the customs duty rate structure, BCD, SWS, and AIDC rates on several goods, other than textile and agriculture, will be reduced to 13% from 21%. Details are awaited for the list of items covered under the 13% slab.
  • Certain items like polished diamonds, chemicals needed for petroleum products, camera lenses for cellular mobile phones, and steel scrap have been reduced, and eventually, these items will get cheaper.
  • Other things that will become cheaper include parts of open cells of TV panels, Denatured ethyl alcohol used in the chemical industry, and compounded rubber.
  • FM extended customs duty on camera lenses and their inputs or parts for use in the manufacture of the cellular mobile phone camera module reduced to zero and concessional duty on lithium-ion cells for batteries for another year.

Increase in CAPEX to boost Indian Infra

Infrastructure is the backbone of any economy. To ensure that India is as robust as possible, the government has increased the capital expenditure allocation to Rs. 10 lakh crore, a massive 33% increase. It will significantly benefit logistics-heavy businesses and sectors in India and make transportation less hassle for Indian entrepreneurs. Reduction in logistics costs will give a much-needed boost to commerce in Tier 2 and 3 cities. 

Stepping into the future

Looking at the Union Budget 2023, the government has pushed financial inclusion and digitalization of finances across industries. In this Union Budget, the FM extended financial aid to businesses, digitalized the agriculture industry, relaxed many business regulations to attract FDI, and boosted capital expenditure to support business growth. In summary, the budget is aspirational and grounding, with a plan for sustainable development and making India an economic superpower.