Budget 2017 For Start-Up Industry: A Fillip Or Flop

The Finance Minister also gave an impetus to startups in the form of further tax sops and an increase in the tax-holiday period and exemption from the Minimum Alternate Tax (MAT).

Prime Minister’s Startup India initiative, launched in 2016, came as a highly welcomed and long overdue move. But Government policies had typically lagged technological development and innovation. More than 20,000 technology-enabled startups mushroomed across the country in the span of a year. With the announcement of Budget 2017-18, there is some good news for startups as they can avail three year tax holiday out of seven years of being operational. Which means the profit-linked deduction available to startups for three out of five years has been changed to three out of seven years. The Minister also announced the carrying forward of MAT to 15 years, as compared to 10 years before. Any startup incorporated after 31 March 2016, will now be able to avail of a three-year tax holiday in the first seven years of being operational.

Experts said the move will help save tax expenses for many startups, including established firms, as most founders do not have controlling stake of anywhere close to 51% in their respective ventures.

MSMEs have all the reasons to cheer with a dip in income tax to 25% for companies with an annual turnover of Rs 50 crore.

With a special focus on pushing towards a digital economy, the budget stated that there can be no transactions made in cash for amounts over Rs 3 lakh. The government has been pushing for a digital economy as a measure to curb corruption and bring black money back into the country. This further gives a push to a huge number of Fintech startups that have come into play over the last three years.

The government announced that the RBI will be the regulatory body for new-age Fintech companies after there was ambiguity on whether to have a separate regulatory body for them.

The government has also not announced any update of the Angel Tax and Google Tax front, two major reforms that startups have asked for multiple times. However, MAT credit entitlement has been increased to 15 years and help incentivize credit availability to startups.

In an effort to promote Digital India, the Government launched two new schemes to promote the usage of BHIM App i.e, Referral Bonus Scheme for individuals and a Cashback Scheme for merchants. BHIM App was launched to promote digital transactions and will unleash the power of mobile phones for digital payments and financial inclusion. Also, Aadhar Pay, a merchant version of Aadhar Enabled Payment System, will be launched shortly.

This will be specifically beneficial for those who do not have debit cards, mobile wallets and mobile phones. A Mission will be set-up with a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and debit cards. Banks have targeted to introduce additional 10 lakh new PoS terminals by March 2017. They will be encouraged to introduce 20 lakh Aadhaar based PoS by September 2017.

Here are a few reactions from the industry leaders and experts from the Startup fraternity:

Bipin Preet Singh, Founder & CEO, MobiKwik
Big digital push is the thrust of the Budget and is a very welcome and the right move for the future growth of the economy. I commend this progressive budget that invests heavily in technology and digitization. The focus on digital payments will lead to revolutionary transformation in Indians’ payment habits. Digital payments will be the new normal in 2017 and we are very excited about this. As we become more digital, India will see new taxpayers and better transparency in incomes. Upgrading digital infrastructure to support cashless transactions in rural and semi urban areas will encourage more merchants and consumers to transact on non-cash and online platforms.

Jasmeet Thind, Co-founder, CoutLoot
An encouraging move from the government, a lot more entrepreneurs are going to give great products to the country in the times to come. The flexibility is much appreciated, this will see a decent rise in the privately held companies, resulting into more jobs and a push to the GDP. Let’s get to work.

Neelesh Talathi, CFO-Pepperfry.com
Promotes Growth, Builds Digital India: The Union Budget 2018 has set the right priorities as India takes head-on the challenging global economic environment. The emphasis is rightly on growth with a slew of initiatives including higher allocation to infrastructure, increased emphasis on affordable housing and more disposal income in the hands of middle class Indians. The Budget continues to focus on transforming India as a Digital Leader by allowing for easier flow of capital to create jobs and fostering innovation in our country, connecting Bharat and encouraging indigenous manufacture of POS terminals.

Shubham, Founder and CEO of Businesswindo.com
Startups can now enjoy tax holiday with a relief of 7 years from the Government. So, this would enable a boosting energy as well as big thumbs up to entrepreneurs. This relief makes the budding companies to establish and spread its wings in proper area, as the time factor is been controlled for a term. However, the promoters would be able to lend/borrow funds accordingly as per the activity of the business. Even the micro, small, medium enterprises even which are not qualified under the “Start-up-entity” now are eligible for tax reduction of 5% from 30% tax liability.

Sonia Sharma, Founder and MD, GoodWorkLabs
It is a great move to reduce taxation on MSMEs with the annual turnover of Rs. 50 Cr because this will benefit almost 95% of all firms in India. This can help companies with real business case to further spend on their expansion thereby providing them with a much-needed immediate economic push and benefitting them and the economy in long run as well. That being said, we were hoping for reforms on the Tax Holidays scheme for Innovative Startups. As per the current policy, starts with innovative ideas can avail this tax holiday. I was hoping that government could extend this benefit to companies with 'real' business. We saw many Startups with ‘innovative’ ideas shutting down in 2016 because they really didn’t have a business case. An extended Tax Holiday limit could help the government create a conducive environment and help Startups make India their breeding ground, which is beneficial for the economy in the longer run.

Vikram Gupta, Founder and Managing Partner, IvyCap Ventures
The 2017 union budget didn’t have many sops for startups other than the MAT extension of period of carry forward from 10 years to 15 years, the challenge still remains in terms of actual cashflow for the startups. The main positive aspect which I see for Startups and SMEs for companies with less that Rs 50 crore of turnover is that tax rate has been reduced from 30 to 25% which should come as a big relief for startups. Most of the startups we invest in have less than Rs 50 crore revenues. On digital transactions there has been a significant boost to the entire sector. The investment in infrastructure to boost digital transactions should support the entire ecosystem.

Sameer Segal, Co-Founder and CEO, Artoo
The Government has employed the right measures to ensure easy adoption of digital transactions across the country. The problem of adoption begins with merchants, and the decision to incentivize digital payments for them with cash-backs, will help in pushing the digital ecosystem forward. The focus on rural and semi-urban areas through post office, banking correspondents, Aadhar Pay for those without mobile phones, is another critical step to enabling and stabilizing the ecosystem, and will help improve access and trust in the nascent payments infrastructure in the country.

Sunil Gupta, Founder & Director, ExportersIndia.com
With ‘Transform, energise, and clean India, that is Tech India’ this budget has upped allocation for rural, agriculture and allied sectors by 24% has opened scope for increasing investments and yielding multiple benefits. The rapid growth in manufacturing sector is a good sign for overall economy. The new FDI policy is a welcome move. MSMEs and startups have all the reasons to cheer with a dip in income tax to 25% for companies with an annual turnover of Rs.50 crore. Their grin grows wider with the FM proposing dip in bank lending rates. Incentives such as cash backs, referral schemes on BHIM app is all set to push the use of digital transactions which is yet another reason for MSMEs to move to online business models. The lowering of Income tax would also increase the spending capacity which will benefit the SMEs.

Gopal Jiwarajka, President, PHDCCI
Government has provided the balanced budget to strengthen the economy from grass roots; tax benefits to small tax payers, MSME’s and infra status to affordable housing are encouraging and would paved the way for a higher growth trajectory. Infra status to affordable housing would absorb semi-skilled and unskilled work force in the housing and construction sector, generate employment opportunities and demand in the economy.

Ritu Singh, Co-Founder, Ela
Budget 2017 has brought a great boost to healthcare and digital economy. Increased government focus on health care, especially on women health which has been untouched for long, will provide a strong foundation for startups like Ela which focusses on women reproductive health. Barring cash transactions above Rs. 3 Las will entirely flip the game towards going digital for all large transactions. Also, lowering of Corporate tax by 5% for MSMEs will bring cheer to all entrepreneurs. Mr Jaitely has also proposed to further liberalise the FDI policy which is an important step required to facilitate external funding and investments.

Ravi Virmani, MD & Founder, CrediHealth
The Union Budget 2017 has taken a step towards making healthcare not just affordable but structurally robust as well. However, technology could prove to be a disruptive factor in assuring that the healthcare reaches out to those who have been hitherto isolated from it. But, unfortunately the budget has completely overlooked the health-tech startups which are changing the landscape of healthcare industry in India. With a focus on transparency and reach, they have been deprived of an opportunity to make a dent in healthcare ecosystem.

Pradeep Dadha, CEO and Founder of Netmeds.com
We welcome the move of Government for amending the drug rules to allow reasonable medicines reaching out to masses in a better way. The amendments in Drugs and Cosmetics Act will improve the way Pharma sectors is serving people in the country. Additionally, we welcome Governments' initiative of 'Aadhar based health record for senior citizens of our country to provide them with healthcare facilities hassle free. Also, the decreased tax slab for the companies in MSME sector will help companies focus more on the expansion of their services.

Aurvind Lama Co-founder CEO of Mr. Lama, Travelyaari
Focus on improving internet and broadband connection in rural areas will go a long way to digitize cashless economy and connecting them to the main stream. The governments focus on inclusion and encouragement of the MSME sector along with Startups is also visible. Profit linked deductions to 3 years out 7 will be helpful for emerging startup players."

Sumit Sabharwal – CEO (Managed Services) & Managing Director (SAARC), Excelity Global
We are delighted and welcome the Union Budget 2017 where the proposals have huge benefit for the growing India private sector workforce. It provides impetus and greater momentum towards a digital economy to make India more competitive on a global platform. Budget announcements will further encourage Excelity’s endeavor to add value to our client’s employees with superior, innovative, simplified and customized value-based technology and mobility offerings.

Meenal Sinha, Founder & CEO, Meetingsandoffices.com
The standout points of the budget are the abolition of FIPB as it will drive greater FDI; the limiting of cash transactions to Rs 3 Lakhs, if this is effectively tracked & implemented it will drive greater transparency in financial transactions; Aadhaar linkage for digital payments to reduce cash requirement; reduction in tax for small businesses to push greater reporting & the thrust on agriculture as that will push greater benefits to underserved rural areas. All in all a prudent budget & one that should stimulate growth.

Ankit Singh, Co-Founder, Mypoolin
Incentivising UPI with new referral bonus and cashback schemes will accelerate the formation of Indian digital payments backbone, educating the whole society and changing their payment behaviour at large. Its benefits will ripple across economy in the long run and setting up targets like 2500 Crore digital transactions show the bullishness and intent of this government to make it happen. However, we expected some steps to shift the behaviour of urban masses driving majority of the consumption to indigenous payments solutions. With remonetisation, they must be deterred to switch back to cash for their expenditures.

Anjani Mandal, CEO and co-founder, Fortigo Network
The continuing growth and stability in the economy as reflected by the positive macroeconomic indicators will get a further boost with the infusion of capital in infrastructure, boosting MSMEs post-tax profits (owing to the reduced Income Tax) as well as increased liquidity with the consumer for his spends (owing to reduced Income Tax).

Ashish Hemrajani, CEO and Co-founder, BookMyShow
We look forward to the GST (Goods and Services Tax) roll out in the coming financial year. The e-commerce space will hugely benefit from real time taxation which not only will introduce the required transparency but will further enable free flow of products and services. We also hope that the GST will play a critical role in automating demand curve pricing to a large extent, thereby improving yields and offering much-needed clarity on taxation in the entertainment ticketing space with respect to e-tax for cinema, plays, live events and sports ticketing, similar to airline pricing. A unified tax structure would also help in removing ambiguity and ease the process for e-tax application and collection. The Industry and the Government will both be winners.

Vishwavijay Singh, Co-founder, SaleBhai.com
The hero of the Union Budget 2017 is definitely the rural sector, with finance minister Arun Jaitley allocating Rs 1,87,223 crore for rural-agri development. The Government has ramped up infrastructure, which should help in taking forward the government's Digital India campaign. As an e-commerce player, I see consumption in rural areas going up. With rural areas likely to witness greater digital penetration, the e-commerce sector is surely to benefit.