In the recent Union Budget 2024-2025, Finance Minister Nirmala Sitharaman made several significant announcements aimed at strengthening the micro, small, and medium enterprise (MSME) sector in India. These measures are set to create a more conducive environment for growth, innovation, and investment.
While many are praising these new measures, it is crucial to take a moment and reflect on one particular decision—the abolition of the angel tax, formally known as Section 56(2)(viib) of the Income Tax Act. This tax, imposed on funds raised by startups from angel investors exceeding the fair market value of the company, should never have existed in the first place. Its presence has hindered growth and innovation, setting Indian startups back by nearly a decade.
The recent decision to abolish the angel tax is undoubtedly a welcome move. By removing this tax, the government has opened the doors for increased investments from a broader range of investors, reducing the tax burden on startups and allowing them to secure the capital they need to grow.
“The abolition of the angel tax will significantly benefit small and medium enterprises (SMEs) beyond startups. This development is expected to attract various forms of capital and financing, including equity and quasi-equity, to this high-growth segment.“
Bhavik Vasa, Founder – GetVantage
While the abolition of the angel tax is a landmark decision, the Union Budget 2024-2025 includes several other measures aimed at empowering MSMEs and startups:
- Increased MUDRA Loan Limits: The loan limit under the “TARUN” category has been increased from ₹10 lakhs to ₹20 lakhs, enabling successful entrepreneurs to access higher financing.
- Credit Guarantee Scheme for Manufacturing MSMEs: This scheme provides term loans without collateral or third-party guarantees, with a self-financing guarantee fund covering up to ₹100 crore per applicant.
- Revolutionary Credit Assessment Model: Public Sector Banks will assess creditworthiness based on digital footprints, benefiting MSMEs without formal accounting systems.
- Preventing NPAs Among MSMEs: The government will ensure credit availability through a credit guarantee from a government-supported fund, preventing stressed MSMEs from becoming Non-Performing Assets.
- TReDS Platform Enhancement: Reducing the turnover threshold for buyers to join the TReDS platform from ₹500 crore to ₹250 crore, facilitating better working capital management for MSMEs.
- SIDBI Expansion: The Small Industries Development Bank of India (SIDBI) will open 24 new branches this year to provide direct credit support to MSMEs in key clusters, expanding its reach to 168 out of 242 major clusters within three years.
Moving forward, the focus must be on creating a supportive environment that fosters innovation, encourages investments, and accelerates growth. At GetVantage, we are excited about these positive changes and look forward to empowering more businesses with seamless, flexible financing solutions.
The Union Budget 2024-2025 is not just a policy update; it’s a bold step towards revolutionizing the Indian startup and MSME landscape. By eliminating barriers like the angel tax and introducing robust support measures, the government is paving the way for a surge in entrepreneurial activity. This budget ignites a new era of growth and innovation, setting the stage for India to become a global leader in business and technology.
