The last two Union Budgets along with various government initiatives such as “Start Up India, Stand Up India” provided the ecosystem much-needed thumbs up, from the government. Expectations were high from Budget 2017. With almost 212 startups that dropped curtains last year, there is much that was desired.
The focus areas as defined by Finance Minister, Arun Jaitley for Budget 2017, transform, energize and clean when broken down to apply for the startup sector holds a lot of hope for what’s yet to come. The existing number of startups need to double by 2020, to lead the economic growth India needs.
TRANSFORM:
– Extension to avail profit linked tax exemption:
Most startups do not incur profit in their early years. This might not be a big relief but it’s a great advancement compared to the earlier 5 years’ bracket. However, one must note that only those only registered ‘startups’ incorporated post March 2016 are eligible.
– MSE with an annual turnover of up to Rs 50 crore, received a five-percentage point rebate on corporate tax to 25% from the earlier 30%:
Again, this draws relief as usually entrepreneurs must reinvest any profit incurred in the initial years to strive for growth and scalability. If the government takes away a portion of this, it increases an entrepreneur’s dependency on outside investment.
– Carry forward of losses for companies:
if a Startup diluted the promoters stake beyond 51%, they could not carry forward their losses and set them off against profits in later years. This led to additional tax liability after the 5 year period for the startup now extended up to 7 years, if it has acquired funding. With the relaxation, now the startups can carry forward their losses, even when they have acquired additional investors. – Extension of time limit for use of MAT credit:
Startups eligible for earlier mentioned exemptions are liable to MAT, however time period for availing MAT credit has been extended to 15 years from the current limit of 10 years. This will be beneficial for startups at large including the ones who have a large MAT credit lying unused.
– No capital gains on conversion of preference shares to equity shares: The government has exempted conversion of shares from preference to equity and given a big relief to startup investors who prefer buying convertible preference share.
ENERGISE:
– Foreign Portfolio Investor (FPI) Category I & II exempted from indirect transfer provision: These provisions were a fallout from the previous cases owing to which stringent laws were drafted. But, the laws caused hardships to FPIs, whose business is to sale and purchase shares of companies in foreign countries. Due to these laws, FPIs had stopped investing in India, and this relaxation is a way to bring that investment avenue back.
CLEAN:
Post the announcement of demonetization, the largest impact drawn was on the consumer sentiment. Indian consumer was demotivated yet the digital space facilitated the government’s move with ease. Budget 2017 has a lot to offer with their emphasis on building up infrastructure to foster sustainable digital economy in India. All moves that drive this movement towards a cashless India presents a great opportunity for fin-tech ventures.
I can proudly say that startups are and always have been at the core of the Indian economy. Ever since independence small-scale industries were the ones who got India as we know it on track and have continued to do so till date. Most solutions presented focused on tax rebate while it is worth mentioning that according to the Startup India website only eight startups out of the 111 that applied received rebates in 2016. That being said, one cannot deny that with this Budget the dream of being a startup nation has been re-energized with a strong claim that we are a Startup nation, one of the largest one at that.
