Latest News | NRIs Can Now Set Up OPCs, Extension of Tax Sops to Startups to Spur Investment

New Delhi, Feb 1 (PTI) The government on Monday said it proposes to incentivise incorporation of one person companies (OPCs) and extend certain tax exemptions by a year for startups, steps that will promote entrepreneurship and encourage NRIs to invest.

Finance Minister Nirmala Sitharaman, while delivering her Budget speech, said incorporation of OPCs will be incentivised and norms will be eased for conversion of these to any type of company later on.

This will be done by allowing such companies "to grow without restriction on paid up capital and turnover, allowing conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days, and allow also non-resident Indians to incorporate OPCs in India", she said.

"This will be a big boost for startups," she said while presenting the first paperless Union Budget.

The government has also proposed to extend the eligibility for claiming tax holiday and capital gains exemption for investment in startups till March 31, 2022.

Previously, only a natural person who is an Indian citizen and resident in India was eligible to act as a member and nominee of an OPC. The term "resident in India" referred to a person who has stayed in India for a period of not less than 182 days during the immediately preceding one financial year.

In case the paid up share capital of an OPC exceeds Rs 50 lakh or its average annual turnover of immediately preceding three consecutive financial years exceeds Rs 2 crore, then the OPC has to mandatorily convert itself into private or public company.

Indo American Chamber of Commerce (IACC) National President S Purnachandra Rao welcomed the government's decision to allow NRIs to operate One Person Companies in India, saying the reduction in registration timeline will help in this direction.

"...along with a one person company proposition on relaxation of paid up capital and residency requirements for NRIs will be paving the way for future investments to support financial inclusion. The real implementation and intended effectiveness on-ground is expected to see concrete success," Lendingkart CEO and co-founder Harshvardhan Lunia said.

WNS Group CEO Keshav Murugesh said the extension of tax holiday and capital gains tax exemption will allow funding in startups, playing a vital role in resurrection of economy and employment generation.

"From the first-time use of a tablet instead of the traditional bahi khata to the implementation of reforms, and core monitoring of revenues and taxes showcase that technology would be the key enabler for the growth trajectory of the country," he said.

Divanshi Gupta, founder of Ucanji, said these steps will not only improve the state of startups in the country but also encourage them to design and develop innovative solutions.

Deloitte India Partner KR Sekar pointed out that one of the challenges of incorporating a OPC is the regulatory compliances, and that these announcements will help in that direction.

Swastik Nigam, founder and CEO of Winvesta said the move will unlock entrepreneurship and innovation.

"This brings India at par with the US and the UK to stir the start-up ecosystem as well as SMEs. This move removes expectations that companies in India must have two shareholders which have often resulted in bringing in family members, who are not professionals into the company," Nigam said.

Phoenix Legal co-founder Saket Shukla noted that it would be critical for the government to ensure alignment of the entire gamut of regulations in order to maximise the ease of doing business in India.

DealShare founder, Chief Business Officer and Chief Financial Officer Sourjyendu Medda pointed out that while the Budget is promising, more could have been done.

"Introducing a more long-term exemption structure on capital gains would have been more helpful. The budget could have looked at introducing ‘a no dividend and no capital tax mechanism' which can help companies funded by VCs to infuse more working capital into their operations," he added.

Indian Angel Network co-founder Saurabh Srivastava agreed.

"Startups were looking at exemptions on ESOP sale, which wasn't there...There could certainly have been more for startups but the government is in active discussions with the community and I expect some of these announcements to come later," he added.

Industry veteran Vijay Thadani said the Budget carried a positive message for the education sector.

"It gives an active effect to National Education Policy 2020 (NEP). The formation of National Research Foundation (NRF), with an outlay of Rs. 50,000 crores in 5 years to boost quality and quantity of research in India, is a big push towards promoting innovation and research...," Thadani, VC and MD of NIIT Ltd and co-founder of NIIT University, said.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)