Unveiling the Budget 2017 for Startups

Expectations of the Startups from the Union Budget 2017

It was in 2016 that Prime Minister, Narendra Modi gave a headstart to the “Startup India” campaign. This campaign was aimed at boosting effective entrepreneurship in the country. This was followed by a series of action plans and strategies that were aimed at making India a “Startup Hub”. As the startup culture evolved in the country, it had a certain wishlist from the Union government in the Budget 2017. Here are some expectations of startups from the Union Budget 2017:

• Startup Registration: The mobile portal and the Startup Hub launched by the government have made it easy for the startups to register themselves with just a click. To promote effective entrepreneurship in India, the startup industry feels that it is imperative for the expansion of the widespread benefits to all the sectors of the startups without any restriction of the products and services to promote healthy competition.
• Need for Capital: One of the most significant factors that lead to the shutting down of the startups in the country at a rapid rate is the lack of adequate capital. In the context of the same, the government has taken the initiatives like “Fund of Funds”, tax exemptions, albeit with some parties and Credit Guarantee Funds. The startups still expected the freedom from the regulatory reforms that could bring about the required balance.
• Tax Exemptions: The streamlining of the tax laws have become quite critical nowadays. The tax laws had earlier restricted the ability to carry forward the losses in cases of changes in the majority shareholding. The startups across the country wanted this plan to drop out to help them in raising adequate funds for themselves. With GST close to reality, the startups wanted sufficient protection from exemptions or deferments.
• Digitization: With demonetization, the fintech startups like Paytm have been on the rise. Therefore, the startups ask for the provision of a favorable and stable along with an investment-friendly environment.

Union Budget 2017: Unveiling the Impact on Startups

In the setting of demonetization, the presentation of the Union Budget by the Finance Minister, Mr. Arun Jaitley has turned out to be in place with the policies and vision of the government. Some of the amendments that have had a direct impact on the development of the startups include:

• Reduced Corporate Income Tax: The government has decided to bring about a reduction in the Income tax from the financial year 2017-18. This would be in effect from the current 30 percent to around 25 percent. This implies that the SMEs (small and medium enterprises) that have a turnover of around 50crores INR can claim this benefit.
• Extension of Time Period under Startup India Initiative: The startups that have been recognized under the Startup India Policy can now claim the benefits of tax under the Section 80-IACof the Income Tax Act, 1961. This would encourage several startups to register under the Startup India initiative of the government.
• Relief for Small Businesses and Traders: The government has reduced the requirement of u/s 44AD for the declaration of a minimum presumptive tax profit up to 6% from the earlier 8% in cases of turnover and non-receipts.
• Carrying Forward of Losses have Changed: Section 79 of the Income Tax Act, 1961 permits a company for carrying forward the losses up to 7 years. However, this provision is available for only those startups that have been recognized under the Startup India Policy.
• Extension of Time Limit for Using MAT Credit: The existing laws provide MAT (minimum alternate tax) at 19% approximately on the profits of all companies. Under the Union Budget, the government has extended the time period for availing the MAT credit to as much as 15 years from the previous 10 years.
• No Capital Gains on Equity Shares Upon Conversion from Preference Shares: Earlier, the conversion was considered to be a transfer and thus this called for the attraction of capital gains tax. The government has exempted the conversion of shares.
• The penalty for Late Filing of Income Tax: Earlier, there was no optional penalty from delay in the filing returns to a certain date. However, now the government has extended the date of the filing fee up to December 31.

Amendments to Boost Digital Economy:

• Cash Payment of Excess Amount Not Allowed: Earlier, the cash payment of 20,000 INR or more was not allowed as an expense. With the passing of the Union Budget, the limit has now been reduced to 10,000 INR. On top of it all, the provision will also cover the capital expenditure now.
• Cash Receipts of Excess Cash will Generate Penalty: Under the new Section 269ST, the cash receipt of more than 3lakhs INR in a single day on a single occasion can be liable to some form of penalty.

Amendments for Ease of Operating:

Under the Union Budget 2017, the startups have also been provided several provisions for the ease of operation as business enterprises. Some of them are:

• Tax on Indirect Transfer: Section 9 of the Act states that incomes that arise in India, directly or indirectly, are taxable in India.
• Provisions relating to domestic transfer pricing have also been put to relaxation to cover those companies that claim profit-linked exemptions or deductions.
• Foreign Investment Promotion Board (FIPB) has also been done away with. This would lead to put more emphasis on FDI (Foreign Direct Investment) through the automatic route.

Budget 2017: Key Themes Across the Sectors of the Startups

While Finance Minister was presenting the Union Budget 2017, he claims the three-point agenda of the government that was aimed at: Energize, Transform, and Clean India. Some of the key themes in the startup sector include:

• Digital economy for transparency
• Employment and infrastructure of the rural areas
• Re-energizing of the youth through education and skill development
• Doubling of the farmer’s income in 5 years
• Improving the infrastructure in terms of efficiency, quality, and productivity
• Pushing for adoption of digital economy

With the release of the Union Budget 2017, the startups and the SMEs can look forward to a progressive and innovative career and improved performance for promoting economic growth and development.