Finance minister Arun Jaitley kept the prime minister’s word on tax breaks on profits made by startups, and followed through on another promise by proposing to amend the Companies Law to make it easier to start a business.
These moves, however, were anticipated and most movers and shakers in the startup community were not overly excited by what they saw.
“PM Modi set very high expectations for startups in his January speech,” said Ravi Gururaj, the chairman of software industry group Nasscom’s product council, referring to Modi’s address at the Startup India event organised by the government in New Delhi. “The budget today is lukewarm at best for startups.”
In addition to allowing 100% profit deductions in three out of the first five years for startups set up between April 1, 2016 and March 2019, Jaitley said investors in unlisted companies will be eligible for longterm capital gains treatment in two years instead of three.
Venture capital investors were asking to be treated on par with the public market investors for whom the time limit is one year.
Vijay Shekhar Sharma, the founder of mobile marketplace Paytm, said that while reducing the time-frame for capital gains to two years is positive, it would not have any major impact because few investors exit in two years.
Moreover, since startups normally don’t make profits in the first few years, tax breaks on profits are not very useful, either.
“Startups will still be liable for MAT (Minimum Alternate Tax), so the effective benefit is not likely to be very significant,” he said.
The NDA government — and particularly Prime Minister Modi —has been eager to project a startup-friendly image, engaging closely with founders and even coming up with its ‘Startup India Stand Up India’ programme to promote entrepreneurship. The government’s initiatives have been generally wellreceived, but this budget seems to have fallen somewhat short of high expectations.
On Monday, Jaitley also announced that the cabinet has approved the ‘Stand Up India’ scheme and allocated Rs 500 crore for Dalit and women entrepreneurs.
iSPIRT said that the proposals to make it easier to start up, capital gains relaxation and the plan to tax income from patents at 10% were all good moves.
But confusion between “goods” and “services” for online downloads has not been cleared and foreign entities continue to sell to consumers without paying any tax here.
“Creating inroads for entrepreneurship in the public transportation space and amendments in the Motor Vehicles Act to allow innovations will provide a strong impetus towards enabling mobility for citizens,” he said. (With inputs from Biswarup Gooptu and Madhav Chanchani)