Budget 2019 India: A host of reforms announced by the finance minister Nirmala Sitharaman is in sync with the vision of Prime Minister Narendra Modi’s campaign Startup India. This is a right step towards encouraging start-ups and bringing in adjacency across sectors.
By Rohit MA
Budget 2019-20: On July 05th, 2019 India witnessed a major landmark for the start-up industry where a major boost was announced by our union minister for finance and corporate affairs Nirmala Sitharaman during her maiden Budget speech in the parliament. In my view, these host of reforms such as a dedicated TV channel for start-ups, relaxation of angel tax, specific opportunities in agriculture, electric mobility, digital currency, focussed skill training in AI, IOT, big data, are in sync with the vision of our Prime Minister Narendra Modi’s campaign Startup India that was announced in 2016. While there are areas of improvement, this is a right step towards encouraging start-ups and bringing in adjacency across sectors.
Not so Angelic
The finance minister said that startups in India are taking firm roots and their continued growth needs to be encouraged. To resolve the so-called ‘Angel Tax’ issue, startups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums.
In my view, while this is a great move, there is a need for more clarity and onus on self-compliance for start-ups and investors. Angel tax was a devil tax and a cause of concern for startups as it has caused much of harassment at the hands of the tax authorities.
The minister also proposed to start a television programme within the DD bouquet of channels exclusively for start-ups. This can be a huge step towards familiarising one and all across economic communities to get inspired, support and work with start-ups. Familiarisation brings in trust, trust brings in opportunities, and opportunities bring in growth. It is important that the government works closely with all the public and private start-ups in India.
Axe the Tax
Merchant tax discounts applicable on all the digital transactions made by the startups, which used to be a disincentive for pushing digital payments, has been removed altogether but likely to have the most positive impact on the acceptance of digital currency especially for higher transactions. While the focus on digital transactions is not new. The ministry of electronics and IT recently launched a scheme, wherein the government will reimburse MDR charges on transactions up to Rs 2,000 made through digital modes.
However, as an extension of previously existing capital infusion encouragement in the form of the long-term capital gain on sale of residential house property, sold before March 31, 2021, will not face any tax if invested in eligible startups. Close to Rs 350 crore has been allocated for 2 per cent interest subvention for all GST registered MSME, thereby boosting capital opportunities for such companies.
Amongst all this, there is a huge opportunity on the NBFC and fintech avenues with the government playing the role of partial guarantee (with a limit) to lending banks on such credits thereby unlocking a capital availability in excess of 1 lakh crores for deployment.
At present, startups are not required to justify the fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF). The finance minister proposed to extend this benefit to Category-II Alternative Investment Funds also. Therefore, the valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny.
Social startups and NGO’s alike will now have renewed capital access through the soon-to-be-setup social stock exchange to ensure fundraising or capital availability is now channelled to address social welfare objectives. The relaxation of carrying forward losses (with specific instructions ) and extended beyond the existing seven years limit are especially good in the case of startups where losses are aplenty and can be set off whence they start making profitable efforts.
The Indian technology landscape has seen a colossal development towards the formation of imaginative new businesses and has risen as the third quickest developing centre point for innovative new businesses in the nation. The ease of doing business and relaxation of norms will give an impetus to the Indian startup ecosystem and shall foster greater industry-academia partnership and incubation.
(Rohit MA is the Co-founder and Managing Director, Cloudnine Group of Hospitals and Co-founder, Capier Investments. Views expressed are the author’s own.)