Although direct cash handouts were few and far between for the startup community in this year’s Budget, a striking announcement has come in the form of tax breaks for companies operating as emerging businesses in India.
“Period of claiming profit-linked tax exemption for startups has been increased to 7 years from 5 years earlier,” said Finance Minister Arun Jaitley in his fourth Union Budget speech on February 1.
“The rate of tax for MSMEs with turnover of less than Rs 50 crore also has been reduced to 25%, a move that is estimated to benefit 6.67 lakh companies in India,” he added.
However, certain quarters also found the lack of mention of Angel Tax for early-stage startups in the Budget disappointing, while others expressed reservations around it being less inclusive even within the startup ecosystem with financial services given greater priority over other sectors.
With announcements anchored around radical domestic policy action – demonetisation – becoming the focal point of Budget 2017, initial reactions from various stakeholders in the entrepreneurship landscape pointed to a largely positive trend towards greater adoption of initiatives for the sector. Here are a few:
Saurabh Srivastava, Co-founder, Indian Angel Network
This year’s Budget offers a mixed bag for the startup community – there are some hits and some misses. Some of the positive moves include:
Increase in tax relief period for startups from 3 to 7 years. Since most startups take time to make profits, it is certainly a positive move in the right direction.
Aligned with this is the ability for a startup to carry forward losses if the founder is involved. This allows companies to take real advantage of tax relief and also help them get private equity investment.
Tax reduction revenues for companies with turnover of up to Rs 50 crore to 25% is a positive move as well.
It also comes as a relief that MAT can be carried forward for 15 years by companies as against 10 years allowed earlier.
However, in addition to these measures, we would have liked to hear a few more announcements in the Budget for startups:
MAT should have been completely scrapped for startups.
It would also have been great if capital gains for startups was aligned with listed companies, since people investing in startups are exposed to a lot more risks.
Lastly, there has been no mention of removal of Angel Tax in Budget 2017. This could be disastrous for startups because VCs come in only after startups have got their angel funding.”
Vikram Gupta, Founder & Managing partner, IvyCap Ventures
“Budget 2017 does not have many sops for startups other than the MAT extension to 15 years from 10 years. The challenge still remains in terms of actual cash flow for startups. Fintech companies should expect benefits on the digital payments ecosystem. But some clarity needs to be made with regard to the usage of cash and also the incentive schemes announced for digital transactions. Also, further clarification with respect to Section 56, 68 and 115 of the Income Tax Act is yet to be seen in the fine print of the Budget. The main positive aspect for startups is the tax reduction of 25%. Most companies we invest in have less than Rs 50 crore turnover so this comes as a huge relief to us.”
Shrutam Desai, Co-founder, Onlymobiles.com
“There are no direct announcements made with respect to the e-commerce sector in Budget 2017. I will call it a muted budget, but the expectations were also on lower side since we are expecting major reforms only during the GST announcements and its subsequent rollout. However, we should also note that ample focus has been placed on improving infrastructure – which eventually brings down logistic expenses for e-commerce companies.”
Upasana Taku, Co-founder & Director, MobiKwik
“A lot of focus has been given to technology. This is perhaps the time that any FM has spoken about cyber security system in a Budget announcement. Amendments to Payment and Settlement Systems Act and the new payment regulatory board outside the RBI are some of the bigger moves since a lot more liberalisation and deregulation is going to happen in the payments sector going forward.”
Much of the steps spoken about are going to happen on the back of digital payments and this infrastructure will comprise of both private and public solutions. I believe it is a very positive Budget from the point of financial services.
Rajat Gandhi, Founder & CEO, Faircent
“The push on digital payment and better infrastructure and data structure for SME loans is a big move. We will, however, have to wait and watch as to how it can be integrated for fintech companies. Another positive move is to have a Payments Regulatory Body as this will give a push to the sector and devise innovative ways of handing things. Also, the government is trying to strengthen Negotiable Instruments Act which is a tool to recover loans. This will help fintech companies as they do not have an offline infrastructure to handle this. We were expecting specific peer-to-peer lending guidelines or the fact that they will enable alternate lending besides bank lending which has not come through and that is a disappointment.”
Manavjeet Singh, CEO & Founder, Rubique
“We appreciate the announcements made under Budget 2017. We feel the Budget is well rounded, covering important aspects of the Indian economy, including SMEs, rural India and digitalization. The profit-linked benefits have been increased from 5 to 7 years now, along with SMEs with 50 crore turnover to be categorized in lower corporate tax slab of 25%. The same is further going to inspire the startup economy, which has already covered strong strides in 2016. Double lending target of banks to Rs 2.44 lakh crore will also help bridge the existing lending gap and we see more capital available for customers especially for MSMEs.”
Saket Modi, CEO & Co-founder, Lucideus
“The Budget this year is a positive one and shows the government’s focus on making India a technology super power, and hence the extensive focus on making Digital India secure. The formation of CERT for the financial sector is a testament to that commitment. Due to rise in the number of digital transactions, CERT for this sector will certainly boost the cyber security stature and bring in more confidence among consumers to adopt digital transactions. Similarly, setting up a separate payments regulatory body will bring in more structured policies and is a clear push to regulate cyber security in the digital payments segment. The government is also further pushing the adoption of BHIM app, which is by far a more secure method of making digital payments by bringing in new scheme mechanisms. Aadhar pay for merchants is also a welcome move. The Budget has laid down clear focus areas and digital being one of the key focuses excites us and is a positive move.”
Vijay Shekhar Sharma, Founder & CEO, Paytm
“It is a digital economy budget. The government has pushed the digital theme in every area of the Budget. Tax benefits, incentives to use digital payments and extending loans based on digital footprint will create a larger merchant ecosystem for digital payments. Incentives for labour intensive sectors including housing, farming and dairy will help SMEs create new jobs. Focus and attention on bank NPAs as well as increasing bank capitalisation is a great step towards strengthening the financial system of the country. Finally, the income tax rate changes will encourage more people to report their incomes and create a larger tax net for the country. Overall, it is a great budget that will encourage people to move to the formal economy and derive benefits.”
Vinay Singhal, Co-founder & CEO, Wittyfeed
“Continuing with its Digital India drive, Budget 2017 has also announced focused initiatives for the digital industry. With continued emphasis on its ‘Digital Village’ project, the decision to provide wifi connectivity to rural areas is a very smart move to promote digitization all across. This is the need of the hour following demonetisation as seamless connectivity would result in end-users benefit.”
Atul Rai, CEO & Co-founder, Staqu
“Budget 2017 has not provided any direct benefits to startups this year. Besides, tax exemptions from capital gains are rather difficult to meet, at least in the early stages of 3-5 years for a startup. However, the newly announced exemptions for income tax of common people and well-rounded push towards digital payments will ultimately increase buying capacity, along with giving a boost to mobile phone utility. These institutional changes will push towards the growth of new age digital startups, albeit indirectly.”
Chiranjiv Patel, Regional Director, Entrepreneurs’ Organization, South Asia
“The overall Budget, as expected is simple, straight, and a motivating one. It is pro middle class, and everyone will certainly appreciate the tax cuts in the lower income group. This budget will help our economy to grow at a decent pace with something that will boost the sentiments of the people of our country at large. Although there is nothing major for the corporate sector that has been hit for the last few months, the overall encouragement to youth and new startups will boost job creations. Measures like the benefits on turnover up to Rs 50 crores on income tax payments, or the removal of scrutiny for first timers etc are welcome steps.”
Rahul Gochhwal, Co-founder, Trupay
“I feel that this is a game changer Budget for the digital payments ecosystem in India and has the potential to transform the country into a cashless economy. The proposal of introducing 20 lakh Aadhar-based Point of Sale (POS) machines will strengthen the digital payments ecosystem in semi-urban and rural areas where conventional POS machines are absent and where people do not have access to mobile phones. Having said that, however, it remains to be seen if the proposed setting up of Payments Regulation Board under RBI and amendments in the Payments and Settlement Act will bring about fundamental changes to accommodate the fast-changing digital payments ecosystem in India.”
Vivek Khandelwal, VP – Delta ID
“We welcome the duty exemptions on iris-enabled PoS devices and are excited about the strong emphasis the government has placed on Aadhaar-enabled payment initiatives. With all the foundations with respect to standards, certifications and availability of devices already in place, this impetus will further accelerate the adoption and integration of Aadhaar in programs and processes that touch everyday lives of the people of India.”
Amit Nath, Head of Asia Pacific – Corporate Business, F-Secure
“Budget 2017 is at par with our expectations. We welcome the move meant to strengthen the digital infrastructure in rural India with the allocation of Rs 10,000 crore for Bharat Net project. It will empower over 150,000 gram panchayats with high speed internet and Wi-Fi hotspots. While this sets the right impetus for rural India to come online, the government has further taken steps to ensure optimum level of cyber security. We appreciate the Computer Emergency Response Team to be set up post the Budget announcement to dedicatedly monitor cyber hacks and ensure the security and integrity of online data. The synergy created by these announcements, along with the efforts of cyber security solutions, is going to further inspire new users to come online, aiding India’s transition to a truly digital economy.”
Mudit Vijayvergiya, Co-founder, Curofy
“Being a startup, we are happy to hear that the government has decided to relax the income tax liabilities applied on startups. The profit deduction period for entrepreneurial juggernauts has also been increased from the previous three out of five years. Startups can now claim 100 percent deduction of profits for three out of the first seven years.”
Pradeep Dadha, CEO & Founder, Netmeds.com
“We welcome the move to amend drug-related rules to allow more reasonable medicines to reach the masses. Additionally, we also welcome the government’s initiative to introduce Aadhar-based health records for seniors citizens to enable them to access healthcare facilities in a more hassle-free manner.”
Source: The Economic Times