Finance Minister Nirmala Sitharaman announced the Union budget for 2024 on Tuesday. This is the first budget of the third term of the NDA government.
Here’s what is there for startups and businesses in Union Budget-2024.
Abolishment of Angel Tax
The government has finally heard VCs and scraped the “Angel tax”. Earlier, this kind of investment was considered as income by the IT department which will now be considered as an investment only.
Angel tax is a tax imposed on the funding granted by angel investors to startups. The tax act comes under Section 56(2) (viib) of the Income Tax Act. When an unlisted company raises capital at a price that exceeds its fair market value, this tax is imposed. The difference amount is treated as an income and thus taxed at a whopping 30.9%.
The law was introduced by the UPA government in 2012 to stop money laundering in startups.
After the angel-tax abolishment move, investing would be easy for all investor classes and so would fund-raising for the 1.2 lakh startups in India.
Another important announcement is that the Long Term Capital Gain Tax (LGCG) has decreased from 20% to 12.5%. This translates to less tax for startups when they sell their shares.
Extension of mudra loan amount limit
Under the Pradhan Mantri Mudra Loan Yojana (PMMY), a collateral-free loan of Rs. 10 lacs was provided to young people. The scheme started in 2015-16, and till March 2024 a loan amount of 28 lac crores has been distributed. In budget 2024-25, the loan amount has been doubled to 20 lacs.
An important thing to note here is this loan will be allocated to those people only who have fully paid the previous loan.
A new Credit Guarantee Scheme for MSMEs
In her budget presentation, FM also announced a credit guarantee scheme for MSMEs which facilitates term loans for them to purchase machinery and equipment. This scheme will constitute a self-financing guarantee fund that will provide a cover of up to 100 crores, while the loan can be higher.
However, the loan borrower needs to provide an upfront guarantee fee, as well as an annual guarantee fee on the remaining loan balance.
New assessment model for MSME
Under the new budget rules, now public sector banks will build in-house capabilities to assess MSMEs for loans rather than relying on external capabilities. They will also be either developing or outsourcing the development of a new credit assessment model based on the scoring of digital footprints of MSMEs in the economy.