India's Budget 2024: Social Security for Gig Workers Proposed
India's Finance Minister Nirmala Sitharaman unveiled a series of measures in the annual budget on Monday designed to support the startup community and accelerate the expansion of digital services, as the country seeks to revitalize its economy following the impact of the coronavirus pandemic.
Sitharaman announced that the government has allocated 1,500 crore Indian rupees ($205.3 million) to encourage greater adoption of digital payment methods. Leading companies such as Paytm, Google Pay, and PhonePe are actively competing to increase digital transactions within India, though they continue to face challenges in establishing sustainable business models for their core payment services.
Numerous companies have advocated for the elimination of the merchant discount rate (MDR), which currently prevents businesses from charging merchants a fee for processing transactions. (Indian firms have agreed to forgo charges to individual customers, but have suggested the possibility of charging merchants.) However, no changes regarding the MDR were announced today.
The budget also included proposals to extend social security benefits to gig workers and platform workers, and to launch a dedicated website to connect these workers with employment opportunities, as stated by Sitharaman. These workers will be guaranteed minimum wage protections. Furthermore, women will be permitted to work in all job categories, including night shifts, with appropriate safety measures in place. “Simultaneously, the regulatory requirements for employers will be streamlined through a unified registration and licensing process, and simplified online reporting.”
Sitharaman also proposed tax relief measures for startup employees when they sell their company shares.
“Startups frequently utilize Employee Stock Option Plans (ESOPs) to attract and retain highly skilled personnel during their early stages. ESOPs represent a significant portion of compensation for these employees. Currently, ESOPs are subject to taxation as a perquisite when exercised, which can create cash-flow difficulties for employees who do not immediately sell their shares and instead hold them long-term. To further stimulate the startup ecosystem, I propose to alleviate the tax burden on employees by postponing tax payments for up to five years, or until they depart from the company, or when they sell their shares – whichever occurs first,” she explained.
The nation also intends to broaden the definition of small businesses, raising the capitalization threshold to 2 crore Indian rupees (approximately $275,000), an increase from the current limit of 50 lakh Indian rupees ($68,750). This adjustment will enable a larger number of businesses to qualify for small business benefits, including certain tax advantages.
“Additionally, recognizing that startups may not generate sufficient profits in their initial years to take advantage of this deduction, I propose to extend the eligibility period for claiming the deduction from the existing 7 years to 10 years,” she added.
The budget also outlined incentives for the establishment of one-person companies, a move that Sitharaman believes will facilitate company growth “without limitations on paid-up capital and turnover, allowing for conversion into any other company type at any time, reducing the residency requirement for an Indian citizen to establish a one-person company from 182 days to 120 days, and permitting non-resident Indians to incorporate one-person companies within India.”
In recent weeks, industry leaders expressed hope that India would address the digital services tax imposed on foreign companies last year. This matter was not included in the new budget.
Sitharaman also stated that New Delhi will develop a strategy to bolster domestic manufacturing and attract substantial investments in the electronics value chain. “I am proposing a program focused on promoting the manufacturing of mobile phones, electronic devices, and semi-conductor packaging. Further details will be announced subsequently,” she said. You can read the complete summary of the 2021-22 budget here.