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• LTCG tax on all equity investments capped at 15%
• Income surcharge on companies in a consortium capped at 15%

In what was a major relief for investors in India, Sitharaman proposed capping the long-term capital gains (LTCG) tax on all equity investments at 15%, which is expected to benefit unlisted companies in India. Earlier this cap of 15% was only for the surcharge levied on LTCG on listed equity shares, while unlisted equity investments had a graded surcharge of up to 37%.

The LTCG tax regime on equity investments was reintroduced in 2018, and some market participants were anxious that the government could introduce a higher LTCG tax rate given the bullish state of the market for the past year. Parity in the surcharge for listed shares and mutual fund units and unlisted assets will help reduce the tax burden for venture capital and angel investors in unlisted startups and other unlisted assets.

Besides this, the government has also proposed lowering the income surcharge on members in a consortium to 15% to match the LTCG tax.

Dawn Of Ease Of Doing Business 2.0

• ‘One Nation, One Registration’ regime for incorporation
• Standardisation and removal of overlapping compliances
• Expanding “Parivesh” single window portal for green clearances

Sitharaman proposed a slew of changes in registration and compliance for companies to push this further.

Firstly, a ‘One Nation, One Registration’ regime will be introduced to ease registration of businesses. This will include digitalisation of manual or paper-based processes and interventions, integration of central and state levy systems, a single contact system for all citizen-centric services.

The government also said it will also focus on standardisation and removal of overlapping compliances, while crowdsourcing suggestions and assessing the ground-level impact on citizens and startups. The minister also proposed expanding the scope of “Parivesh” single window portal for all green clearances as part of EoDB 2.0 to reduce the number of application forms from four to one for project approvals.

Crypto Ecosystem In Tax Net

• 30% tax on income from virtual digital assets
• 1% TDS on crypto transactions over a certain threshold

Addressing a slew of confusions around crypto taxation, the finance minister proposed a 30% tax on income from digital assets. The move is referred to be in sync with the budget expectations of the crypto industry. By far, this is the highest tax band introduced in the country.

Announcing the scheme for the taxation of digital assets, Sitharaman said, “For the taxation of virtual digital assets, I propose to provide that any income from the transfer of any virtual digital asset shall be taxed at the rate of 30%.”

She further added that no deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition. Further, the loss of transfer of digital assets can not be set off against any other income. Further, in order to capture the transaction detail, TDS on payments made in relation to the transfer of virtual digital assets at the rate of 1% has been proposed, over an unspecified monetary threshold.

India To Get A Digital Rupee

• Digital Rupee using blockchain and other technologies proposed
• To be issued by the Reserve Bank of India starting 2022-2023

Besides the 30% tax on income from virtual digital assets, she also announced plans to introduce a fiat cryptocurrency (Digital Rupee) to be issued by the Reserve Bank Of India in 2022-2023.

The digital currency will also lead to a more efficient and cheaper currency management system in India. It will be built using blockchain and other technologies. Earlier this month, the RBI announced the creation of a fintech department to respond to the growing innovation needs and challenges in financial services such as the digital currency.

Skill Development Comes Into Focus

• A new DESH-Stack for skilling, reskilling and upskillling needs 
• 750 science and mathematics virtual labs 
• 75 skilling labs for simulated learning environments 
• Updating National Skill Qualification Framework (NSQF)

One of the biggest challenges in the Indian market is the lack of relevant and modern employability skills, a gap that edtech startups are increasingly looking to fill.

On the government’s part, Sitharaman announced that the central government skilling programmes and partnerships with the industry will be further reoriented to promote continuous skilling avenues, sustainability and employability. Towards this end, the National Skill Qualification Framework (NSQF) will be aligned with dynamic needs of the industry.

Besides this, to promote crucial critical thinking skills in vocational courses and to give space for creativity, 750 virtual labs in science and mathematics, and 75 skilling labs for simulated learning environments will be set-up in 2022-23.

She also said that in 2022-23, a Digital Ecosystem for Skilling and Livelihood or DESH-Stack portal will be launched for skilling, reskilling and upskilling needs of individuals. The online skill development portal will provide API-based trusted credentials, payment and discovery layers to individuals to help them find relevant jobs and entrepreneurial opportunities.

Edtech Digital University & eVIDYA Expansion

• Digital University for online higher education
• eVIDYA to be expanded to 200 TV channels
• eVIDYA language support to be broadened
• Training and support for digital teachers

Ahead of the budget, the edtech startup ecosystem in India had called for a central digital university to make online higher education more accessible and affordable for the masses.

In line with these expectations, Sitharaman announced that a ‘Digital University’ will be established to bring online higher education and personalised learning to students. The courses in the Digital University will be made available in different Indian languages and multimedia formats.

The Digital University will be built on a networked hub-spoke model, with the hub in charge of the technology implementation and public universities and institutions serving as the delivery touchpoints for students.

On the primary education front, the FM said that the ‘one class-one TV channel’ programme of PM eVIDYA will be expanded from 12 to 200 TV channels to provide supplementary education in regional languages for classes 1-12. High-quality online learning content in regional languages will also be developed for delivery via internet, mobile phones, TV and radio through digital teachers, who will receive training for development of quality content and facilitate better learning outcomes.

Agritech Startups Get Big Push In Union Budget

• Public-private partnerships potential for startups for agritech push 
• NABARD-led funds for agritech startups and rural enterprises
• Push for drone and farming-as-a-service

Agritech startups and companies will be engaged in public-private partnerships to deliver the latest technology education to farmers and aid in implementation. The FM also announced other policies and government-run funds for agritech startups in the drone and farming-as-a-service at the Union Budget 2022-23.

A fund with blended capital raised under co-investment model will be facilitated through the NABARD to finance agritech startups and rural enterprises relevant to farming. Startups supporting food producer organisations, farm rental services and other technology such as IT-based support will be eligible for funding under this scheme.

Skies Cleared For Drone Startups 

• Supporting drone-based applications for agriculture
• Drone Shakti scheme to encourage varied applications for UAVs

Drones got two separate mentions during Sitharaman’s address. Firstly, the government has proposed a ‘Kisan Drones’ scheme, seeking to promote the use of unmanned aerial vehicles for crop assessment, digitisation of land records, spraying of insecticides, and nutrients. This is part of the effort to modernise agriculture through the use of data and emerging technologies.

This is expected to encourage drone-related innovations in the country after the registration and certification process was simplified last year with the Drones Rule 2021.

Besides this, Sitharaman said that under a new Drone Shakti scheme, startups will be encouraged to launch varied applications for such UAVs and enable Drone-as-a-Service (DrAAS). To solve the talent crunch gap in the drone sector, the required courses for drone-centric skilling will be started at select Industrial Training Institutes in all states.

MSMEs Get Platform Boost

• Interlinking of MSME portals to offer government, business services
• Emergency Credit Line Guarantee Scheme extended to 2023
• MSME guaranteed cover extended by INR 50,000 Cr

Looking to streamline the various portals and databases related to MSMEs, FM Sitharaman said UDYAM, e-SHRAM, National Career Service (NCS) & Aatmanirbhar Skilled Employee Employer Mapping or Aseem portals will be interlinked. The interlinked portals will serve as live organic databases for MSMEs to avail G2C, B2C & B2B services such as credit facilitation, enhancing entrepreneurial opportunities.

As of January 17, 2022, 66,34,006 micro, small and medium enterprises (MSMEs) have registered on the official Udyam MSME portal, with 62.7 Lakh micro, 3.19 Lakh small and 34,355 medium enterprises.

On the monetary side, the Emergency Credit Line Guarantee Scheme (ECLGS) has been proposed to be extended up to March 2023, with a guaranteed cover extended by another INR 50,000 Cr. The total cover under the scheme will now be INR 5 lakh Cr. The ECLGS was unveiled as part of the INR 20 Lakh Cr comprehensive package announced in May 2020 as part of the COVID-19 stimulus package.

Both these steps are expected to enable banks and other service providers in bolstering lending to the MSME sector as well as delivery of other services such as procurement, sales and marketing tools, customer management systems and more.

Digital Banking, Payments Get A Push

• Inclusion of post office banks under the core banking umbrella 
• 75 digital banking units to be set up by scheduled commercial banks
• Renewing INR 1,500 Cr allocation to boost digital payments

Looking to boost financial inclusion in rural and semi-urban areas, the FM announced that all post office banks in India will now come under the core banking umbrella to boost financial inclusion. This is the next step towards interoperability between banks and post office accounts.

Individuals will get access to post office bank accounts through net-banking, mobile banking, ATMs, and can transfer funds between post office accounts and bank accounts. This is likely to be a big push for the digital payments and banking ecosystem.

While the minister also announced the creation of 75 digital banking units by scheduled commercial banks, little is known about this at the moment. The digital banking units are likely to be integrated into the interlinked MSME portals to offer lending and other financial services to these businesses.

Of course, one of the biggest demands from the fintech and digital payments sector has come in relation to the zero MDR for UPI and RuPay transactions, which has limited the revenue generation potential of such platforms. While zero MDR was not lifted by the government, it has renewed the INR 1,500 Cr allocation to boost digital payments, which was announced last year.

EV Battery Swapping Comes Into Focus

• Battery swapping policy proposed for interoperability
• Push for battery/energy-as-a-service 

Electric mobility is a big focus for the government going forward as it looks to meet its emission goals. One of the biggest challenges, of course, is the lack of charging infrastructure which has hampered EV adoption.

While there is no central EV charging infrastructure policy, the government has proposed a battery swapping policy, which requires less space and enables interoperability of vehicles.

Besides this, startups and private players will be encouraged to develop business models that can enable battery-as-a-service or energy-as-a-service to ease the infrastructure challenges for emerging and new EV manufacturers.

Defence Sector Opened Up For Startups

• Defence R&D opened up for startups
• DRDO-led private public partnerships for design and development

One of the biggest boosts for the startup ecosystem has come in the defence sector. Firstly, defence research and development (R&D) will be opened up for startups, with 25% of the total defence R&D budget earmarked for this.

Private players will also be encouraged to take up the design and development of military platforms and equipment in collaboration with DRDO and other organisations through public-private partnerships. A nodal body will be set up for testing and certification of these indigenous platforms, to streamline product development.

5G Launch Imminent

• 5G spectrum auction in 2022
• 5G services to be rolled out in 2022-23

While the past six years have been about 4G and consequently, the rise of the internet economy in India, in 2022, the focus will turn to the next generation or 5G services. Telcos are expected to roll out 5G services in 2022-23, with the spectrum auction happening this year, Sitharaman said.

“A scheme for design-led manufacturing will be launched to build a strong ecosystem for 5G as part of the PLI scheme,” Sitharaman announced. The PLI is aimed at enabling affordable broadband and mobile communication in rural and remote areas.

After much delays in the auction dates, in December 2021, telecom secretary K Rajaraman hinted that the 5G spectrum auctions would commence in early-2022. Since May 2021, telecom operators such as Jio, Bharti Airtel, Vodafone Idea and MTNL have been conducting 5G trials in India. Telcos have been allowed to conduct trials with their partner OEMs and technology providers, provided they are not based out of China.

PM GatiShakti: UPI Moment For Transport Tech?

• Target of 25,000 Km National Highways in 2022-23
• Revamped Unified Logistics Interface Platform
• Open source mobility stack
• Integration of postal and railway network
• 400 energy efficient Vande Bharat trains
• Multimodal connectivity for urban transport and transit stations

As part of the GatiShakti master plan, 16 ministries will work together for integrated infrastructure development, including railways, roads, oil and gas, power, telecom, shipping and aviation.

Last year, the government said the GatiShakti initiative will reduce the logistics cost to 8% of the country’s GDP from the current 13%, which is likely to have a positive impact on prices of essentials as well as business and consumer spending on non-logistics needs.

The GatiShakti programme includes the expansion of roads, railways, ports, airports, mass transport, waterways and logistics infrastructure. As a multi-modal logistics plan, these key areas are expected to work together to create efficiency in movement of people, goods, projects and infrastructure.

Railways will develop new products and logistics services for small farmers, and small and medium enterprises and integrate the postal networks for seamless movement of goods.

Further, the FM proposed revamping the Unified Logistics Interface Platform to facilitate data exchange between operators across different modes of transport, for improved logistics management and access to real-time information and on-ground data. It will include an open source mobility stack for seamless travel of passengers from mass urban transit locations.

Besides this, warehousing and logistics companies and startups will be able to bid for contracts for implementation of multi-modal logistics parks at four locations in 2022-23.