On Monday government announced what we call is a mixed bag of initiatives in the Budget for startups. Which included 100% tax exemption for three years, Allocation of Rs 500 crore for SC/ST and Women Entrepreneurs and many more to facilitate and strengthen our country's startup ecosystem. But the real question is, will these initiatives make a real impact on the fast-growing startup landscape of the country?
India’s leading investors have welcomed the government’s move to simplify the company registration process and the reduction in the time period for long-term capital gains (LTCG) tax accruing out of investments in unlisted firms. Nishant Rao, COO, Freshdesk says ”From the startup ecosystem’s perspective, it is nice to see the government easing and encouraging new businesses to start under the one-day incorporation." Although, many Industry experts are questioning the possibility of Companies getting registered in one day, but our Finance Minister Arun Jaitley in his budget speech has assured entrepreneurs that the process of registering a startup will take only 24 hours.
In the Union Budget 2016, the government has initiated a clear focus to revolutionalize the education sector by providing entrepreneurship education and training in 2200 colleges, 300 schools and 500 Government institutes. Also, the reach of Massive Open Online Courses (MOOC) ventures will be utilised to render training at 50 vocational training centres. Ashwani Rathore SpiderG CEO and Co Founder says, "Entrepreneurship learning through Massive Open Online Course (MOOCS) will provide access to educational resources across the country. These positive moves will spark a new energy in the startup sector which is expected to raise $700 million and will generate around 5,000 jobs in the next 12 months."
Living up to the promise announced by PM Narendra Modi at Startup India Action Plan the Union Budget 2016 made it official by providing 100 per cent deduction of income tax on profits for the first three years of a startup’s life. Tax holiday for three years was a part of ‘Start-up India, Stand-Up India’ plan to boost startups and encourage entrepreneurs to start new firms and are not the mirror image of the traditional firms. However, Utsav Somani of LetsVentures feels that the 100 per cent tax exemption must be extended beyond three years for it to make a real impact, as the majority of startups are hardly making profits in the initial years. However, he welcomes the move to reduce the holding period on LTCG (Long Term Capital Gains) and finds it great for M&A as acqui-hires have become a common affair now.
Samar Singla, CEO & Founder, Jugnoo says, "We expected more from the Budget in terms of reduction in compliance for startups and debt financing to make it easy for startups to focus on the idea more rather than regulatory hurdles." Talking on similar lines, Nishant Rao, COO, Freshdesk says, "we were hoping to see equal emphasis placed on further relaxing the regulations and compliance to make it easier to smoothly run and grow existing startup businesses and also on making it easier to wind up and merge startups, thereby enabling brave entrepreneurs to take intelligent risks.”
Sunil Goyal, Founder and CEO of YourNest & also our Mentor says, "Silence on the startup tax (Also known as Angel Tax) on equity funds raised at a premium is the biggest disappointment." He feels that Angel Tax is the biggest pain of our startups. Ajeet Khurana, Ex-CEO SINE IIT Bombay, Angel Investor and also our Mentor states that he is yet to come across any entrepreneur who is excited about the 100 Per Cent tax exemption. He feels that not only startups don't make meaningful profits in the initial stage, but the eligibility criteria to get tax exemption is also full of obstacles.
Bipin Singh CEO & Co Founder of MobiKwik says, "the allocation of Rs 500 crore for women/SC/ST entrepreneurs as part of Standup India initiative is another validation of the fact that startups have a critical part in driving India’s growth." But some of the industry watchers and promoters of startups were not enthused about this reservation initiative. Neha Khanna, Director of Enablers says, "In a space which is already struggling to receive funding and support as the ecosystem develops, introducing reservations leads to the demise of innovation and contradicts the very spirit of entrepreneurship which should be free for all to explore."
