Launching the Startup India Action plan, Prime Minister Narendra Modi had mentioned that the government wants to play the supporting role and that of an enabler. The intention is laudable and the Budget looks to provide some very important steps around the ease of doing business, taxation, access to capital for MSMEs and skilling. However, certain issues remain and it may fall short of being the ideal budget that it could have been.
No tax on income from Startups: First talked about the in the Startup India action plan, the Finance Minister in his Budget speech said to boost economic growth and employment a 100% deduction of profits for 3 out of 5 years for start-ups, during April, 2016 to March 2019, with certain riders will be available. Similarly to promote innovation, a special patent regime with a 10% rate of tax on income from worldwide the exploitation of patents developed and registered in India was proposed.
Capital Gains and ARCs: The Long Term Capital Gains Tax has been a huge bone of contention for the Startup community. While listed companies do not attract LTCG beyond a holding period of 12 month, unlisted companies (read Startups and Privately held) companies attract 20% till a holding period of 3 years.
The Finance Minister has now reduced the holding period of from three to two years to get benefits of long term Capital Gain regime in case of unlisted companies. However, this still falls short of countries like Singapore, that have a 0% Capital Gains Tax, compared to India’s 20% (with inflation benefits). Founders and investors can save millions of dollars on capital gains tax if they shift their domicile to a country like Singapore.
Another significant move in the Budget has been that Jaitley now allows non-banking financial companies deduction to the extent of 5% of its income in respect of provision for bad and doubtful debts. Jaitley, also added that determination of residency of foreign company on the basis of place of effective management (POEM) will be deferred by one year and reiterated commitment to implement General Anti Avoidance Rules (GAARs).
To get more investment in Asset Reconstruction Companies (ARCs), which play a very important role in resolution of bad debts, a complete pass through income-tax to securitization trusts including trusts of ARCs has been proposed. The income will be taxed in the hands of the investors instead of the trust.
1-day incorporation: This in another provision that was first talked about in the Startup India action plan. The Finance Minister reiterated that provisions will be made to enable registration of a company in one day. The Prime Minister had in his Startup India plan mentioned that 1-day incorporation via a mobile app would be possible.
This is an important proposal and would be a big boost for aspiring entrepreneurs , if it can be pulled off. As of now, it takes anywhere between 15 and 30 days for a company to get incorporated. It would also be interesting would be to see if all steps ranging from Digital Signatures, Director Identification Numbers (DINs), Name approvals and Certificates of Incorporation can be done in 1 day.
Skilling India: “Skill India Mission seeks to capitalize on our demographic dividend. Since its launch, the National Skill development mission has created an elaborate skilling ecosystem and imparted training of 76 lakh youth. We want to bring entrepreneurship at the doorstep of youth thorough the Pradan Mantri Kaushal Vikas Yojna and decided to set up 1500 multi skill training institute across the country. I am setting aside an amount of Rs. 1700 crore for this initiative,” said the Finance Minister.
The government will also set up a national board for skill development certificate and will participate with the industry and academia. “We propose to further scale up the Pradhan Mantri Kaushal Vikas Yojna to skill 1 crore youth over the next three years,” said Jaitley.
He added that entrepreneurship education and training will be provided in 2200 colleges, 300 schools, 500 ITIs and 50 vocational institutes through massive online courses. Aspiring entrepreneurs, particularly from the remote part of the country will become connected to mentors and credit providers.
MUDRA scheme: The Pradhan Mantri Mudra Yojna was launched for the benefit of the bottom of the pyramid entrepreneurs. Banks and NBFCs have reported an amount of Rs 1 lakh crore covering 2.5 crore borrowers have been made this year. For the coming year Jaitley says the plan is to increase the target to Rs. 1 8 lakh crore.
Presumptive taxation scheme: Under the presumptive taxation scheme under Section 44AD of the Income tax Act, the limit of turnover or gross receipts has been raised to Rs. 2 crore from the exiting Rs. 1 crore rupees to benefit about 33 lakh small business people. It frees a large number of such assesses in the MSME category from the burden of maintaining detailed books of account and getting audit done.
The presumptive taxation scheme is to be now being extended to professionals with gross receipts up to Rs. 50 lakh with the presumption of profit being 50% of the gross receipts.
Corporate tax for Small Companies: The corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding Rs. 5 crore (in the financial year ending March 2015) is proposed to be lowered to 29 % plus surcharge and cess. The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed to be given an option to be taxed at 25% plus surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
Service Tax exemption: Service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development and Entrepreneurship are proposed to be exempted.
Rs 500 cr to support SC/ST, women entrepreneurs: The Finance Minister said the government will partner with Dalit Indian Chamber of Commerce and Industry (DICCI) to set up entrepreneurial hubs for entrepreneurs from the backward classes by allocating Rs 500 crore for its Stand-Up India scheme. This was recently passed by the Union Cabinet and has found mention in this year’s Budget. “This will benefit 2.5 lakh entrepreneurs,” Jaitley said.
Source: The Economic Times