Startups Get Visibility, Space And Recognition Under The Union Budget 2019 Sky
In a Budget speech where ‘startup’ was mentioned 18 times, Finance Minister Nirmala Sitharaman announced relief measures around angel tax and early stage tax scrutiny, FDI reliefs, encouragement for EV startups, and a separate TV channel for startups.
The so called "colonial briefcase" was finally disbanded from the Indian Budget history when India's Finance Minister (FM) Nirmala Sitharaman came to present her maiden budget to the parliament. The FM carried the budget in a red cloth wrapping with the national emblem embedded in the centre.
This Budget was the first of Narendra Modi’s second term and as usual, there were expectations all around. Although the significance of the Union Budget post the Goods and Service Tax (GST) era is limited to largely direct taxes and plan schemes, reforms and policy changes these days do seem to happen all through the year and are not limited to the Budget alone.
This Budget did not have quick fixes or sops and doles as people used to expect but instead seemed to run with a 10-year vision timeline. The PM called the Budget as "one of hope that will boost India's development in the 21st century". He also stated that such a budget will encourage and build startups, strengthen enterprises, increase women’s participation, modernise infrastructure and simplify the tax system.
The FM in her previous stint in Modi Sarkar 1.0 as Minister for Commerce and Industry had given significant importance to the PM’s pet programme Start Up India, which also seems to have been carried forward in this Budget.
The Indian economic perspective for the people by the government has always been one of creating livelihoods and jobs. This triggered more job seekers in the economy seeking government jobs as private enterprises were limited post-Independence. As the private sector grew thanks to the entrepreneurial spirits of a handful of risk-taking people, jobs emerged in the private sector as well, in the 1970s and 1980s.
Taxation sops-driven models of the 1990s including the EOU’s, STPIs and SEZs opened up the back office and software development markets in India. However, large chunks of the knowledge economy population remained happy being job seekers until recently as the entrepreneurial abilities of India’s young emerging population, which is willing to take risks, innovate, and be a job creator, emerged with a recognition by the Modi government of the need for creation of startups and becoming a global player.
Startups have demonstrated promising potential and play an important role in economic development given the fact that they have a potential to create jobs across the economic strata of society for both India and Bharat.
Therefore, building an ecosystem for startups is more than necessary in the coming decade for India as the economy transitions into an innovation economy, which, if not adequately backed by favourable policy and government support, can become a potential point of regret decades after.
India, with its vast consumer and seller base in goods and services, can easily aspire to become one of the world leaders in the space of Internet-based startups, which is currently held by entrepreneurs from the US and China.
Startups getting visibility, space, recognition and multiple mentions in the Union Budget 2019 indicates a major departure in which the government expects the entrepreneurial capabilities of the people to open up and flourish. The magic word ‘startup’ was mentioned 18 times in the 127-minute-long Budget speech.
Considering the importance given so far, it is imperative that the government sees startups as not just tools of employment generators and entrepreneurship alone but a means to take India to the next level, where India transforms into a 5 trillion dollar economy.
The proposal for the RBI and banks to absorb the charges and merchant discount rates for startups espousing digital modes of payment will reduce burden on small businesses and startups and encourage move towards a less cash digital economy.
While much more reform may be still needed in the insurance space to allow online players to help in outreach to the customers but still not be subjected to be treated as an insurance company, the Budget allowing 100 per cent FDI in insurance intermediaries will be seen as a step in the right direction.
On the Angel tax issue, which has been another area of dreadful concern for every startup, the FM said, “To resolve angel tax issue, startups which file requisite declarations will not be subjected to scrutiny in valuation.” In the past couple of years, the issue caught attention after multiple startups started getting notices from the tax department, ordering startups to pay taxes or in some cases, with additional fines.
The FM also promised relief for startups from Section 68 through an e-verification process for investors and extension of exemption from Section 56 to startups and their investors through a Department for Promotion of Industry and Internal Trade (DPIIT) mechanism. What is important here is the fact that field units within the taxation system will have an administrative mechanism in place on how to deal with such issues, which does not breach the concept of ease of doing business.
Another notable announcement by the FM was around the launch of a new television channel focused on nurturing and supporting startup activity in the country. Indiatech.org has also been advocating for focused programmes on startups in various government channels. DPIIT too on its part has been a key supporter of this idea and this seems to have finally taken a much larger shape in this Budget, which is a welcome move.
By having rich content around startups, innovation, policy, taxation, convergence points with investors and government officials, it can turn out to be a game changer as it can inspire budding entrepreneurs on innovation, entrepreneurship, skill development, livelihood creation and new business ideas and can have a penetration across India's youth in urban and rural areas.
Through this, India can also come with its own customised version of shows such as ‘Shark Tank’. Shark Tank was an ABC Television Network show that supposedly unleashed and rejuvenated entrepreneurship in the US and won multi-Emmy Awards where self-made millionaires and billionaires continue their search to invest in the best businesses and products that budding entrepreneurs from different walks of life have to offer.
Another area startups and their employees were eagerly looking at was ESOP taxation. At present, start-up employees are taxed when they exercise their options and convert ESOPs to shares. Many employees may be in a situation of paying more tax than their salaries. There is a need for a policy that can facilitate start-up employees’ ESOPs to be taxed when the actual sale happens.
Overall, this was a good Budget for startups and it also reaffirmed the fact that “startups” need to continue to engage with and educate the government on their issues and that the government is “listening” and willing to act.
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