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The Union Budget 2021 has laid special focus on promoting and developing the financial technology (fintech) space as the COVID-19 pandemic led to tremendous growth in the adoption of digital financial services.
While tabling the Budget on Monday, finance minister Nirmala Sitharaman announced the setting up of a ‘world-class’ fintech hub at GIFT City in a bid to bolster innovation in the fintech industry.
GIFT City, or Gandhinagar Gujarat International Finance Tec-City, located in Gujarat’s Gandhinagar district, is an international business centre and India’s first operational smart city that provides office spaces, residential apartments, schools, and hospitals, among other facilities.
During her speech, Sitharaman proposed tax incentives to promote the International Financial Services Centre (IFSC) in GIFT City, which includes tax sops for relocating foreign funds in the IFSC and tax exemption to investment division of foreign banks located in IFSC.
“Utilising the infrastructure at GIFT city to promote fintechs and strengthening the existing gold infrastructure at GIFT are a progression in the right direction,” said Dinesh Khara, chairman, State Bank of India.
Experts say this move will promote new ideas and innovations in financial technology services and products and set the stage for India’s financial technology companies to thrive and make a mark globally.
“The availability of customized support and tools will not only expedite the processes and development but also create an environment conducive to ideas and innovations,” Kumar Abhishek, CEO, and founder, ToneTag.
Alok Mittal, CEO, and Founder, Indifi Technologies concurred and added “Setting up of a world-class fintech hub in GIFT City is a tremendous opportunity to provide seamless linkage for Indian fintech companies to global financial ecosystems.”
Incentives for Digital Economy
As Covid-19 marked a significant shift to contactless, digital payments, the Budget earmarked INR 1,500 crore to further promote digital modes of payment.
“To give a further boost to digital transactions, I earmark INR 1,500 crore for a proposed scheme that will provide financial incentive to promote a digital mode of payment,” Sitharaman said while presenting the first-ever paperless Union Budget.
The payments industry believes this scheme will support fintech players in their efforts of driving the adoption of digital modes of transactions among MSMEs and small entrepreneurs who are apprehensive about moving money digitally.
“I believe the INR 1500 crore incentive announced will open a plethora of opportunities for Fintechs to innovate for the new normal, leading to large scale adoption even in the smallest of towns and villages,” said Harshil Mathur, co-founder, and CEO, Razorpay.
The Budget failed to address the removal of or an alternative to zero MDR in digital payments, which was introduced in the Budget 2019, so the industry is hopeful that this scheme will help cover losses incurred by companies in the absence of MDR.
“Hopefully, it will be used to reimburse losses suffered by payment service providers for processing RuPay debit cards and UPI transactions for free in the year 2020 as well as top up the INR 500 crore fund set up by RBI as part PIDF,” said Vishwas Patel, Chairman, Payments Council of India. UPI clocked 2.3 billion transactions in January 2021.
Mathur added, “I hope the funds will be used towards developing alternatives to zero MDR (Merchant Discount Rate) policy and initiatives towards bringing digital financial literacy in vernacular languages.”
To further incentivize digital transactions, the FM proposed an increase in tax audit limit to INR 10 crore from the current INR 5 crore for companies that opt for 95 per cent digital transactions.
Archit Gupta, CEO, and founder, Cleartax said this move will reduce the compliance burden on companies. “It (increase in tax audit limit) encourages digital payments, which reduces compliance at several levels – lesser handling of cash, faster reconciliation of books of accounts, better cash flows for businesses. This is a big relief to brands on the internet who are on a robust digital journey. No audit for turnover upto INR 10 crore will significantly ease up burden on all young startups and small businesses.”
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