Budget 2020: Startup Update – Seed Funding And Tax Relaxation
Finance minister Nirmala Sitharaman says the government aims at easing business for startups with measures such as seed funds and easing ESOP tax.
“Entrepreneurship has been the strength of India” begins Finance Minister Nirmala Sitharaman in her union budget speech 2020. She has proposed measures that are aimed at ease of doing business for Indian startups. Along with the initiation of a new policy for clearance to entrepreneurs, there has also been a proposal of proving seed fund for early-stage startups to help them grow.
Praising Indians who chose to leave green pastures and stay in India to create business opportunities, FM believes it will contribute to economic growth. These job creators become wealth creators and the government encourages them in doing so.
“She says- The youth (of India) are no longer job seekers but are job creators.”
With the investment clearance cell, it will become easier for faster clearances for businesses on both state and central levels through the online portal.
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An allocation of Rs. 3000 crores have been made for ‘skill development’ which she said in light of youth being the power behind startups.
On the tax front, there has been relaxation on ESOP (Employee Stock Ownership Plans) with the tax being deferred by 5 years or until they leave the company or sell shares, whichever is earlier. There will be tax benefits for the first 3 years to startups that have a turnover of up to Rs. 100 crores. This proposal will solve the issue of dual taxation and allow employees and startups to use ESOPs for attrition rates and retaining top talent.
“Moreover, considering that during the initial years a startup may not have adequate profits to avail this deduction, I propose to extend the period of claim of deduction from the existing 7 years to 10 years,” Sitharaman
There has also been a mention of government setting up a digital platform for easing IPRs’ registration that is developed by entrepreneurs and startups.
What are Indian entrepreneurs saying?
There has been an active reaction to the budget’s consideration for startups. This is what a few startup owners and CEOs are saying:
- On the export benefit front
Mr. Tim Nicolle, Founder, PrimaDollar, says, “The Finance Minister’s announcements under Union Budget 2020 introducing new schemes will help the small players in the export sector in a big way. The new Nirvik scheme introduces high insurance cover for exporters at a reduced premium. Simplified processes for faster claim settlements will be beneficial for both the exporters and the general insurers. It will lead to providing high insurance cover, reduction in premium for small exporters and simplified procedures for claim settlements, this will encourage export finance. This will boost exports. Coming to the MSMEs, the announcement for the subordinate debt for entrepreneurs is a big positive and will help the MSME sector benefit in a massive way. These seem to be sound measures that can stimulate profitable activities for players in the trade and finance sector.”
- Regarding datacentres and digital India
Mr. Harsh Jain, Co-founder, and COO, Groww, “Making policy for data center parks for digital resources like fintech, AI, aggregator platforms along with the connection of 1 lakh villages via optical fiber internet is great news for digital India. This will definitely increase digital penetration into India that was unthinkable before.”
- Addressing the ESOP taxation relaxation
Mr. Archit Gupta, Founder, and CEO, Cleartax, “Firstly the deferment of ESOP taxation at the time of exercise is a very welcome move. This will help motivate and hire high-quality resources. The amendments to section 80IAC on relief to startups are lackluster. This section has several conditions that need to be fulfilled and a lot of approvals built into it as eligibility criteria. The government needs to relax this more. Reduced compliances via single window for multiple compliances, reduced applicability of various Acts could really ease doing business in India and this will be more impactful.”
- The extension of GEM
Ms. Meghna Suryakumar, Founder and CEO, Crediwatch says “The focus on enabling growth for MSMEs in today’s Union Budget is encouraging. Enabling NBFCs to extend invoice financing to MSMEs through TReDS, should enhance opportunity to fuel the Indian economy and widen the acceptability and trust by the BFSI sector. The extension of GEM e-marketplace as a unified procurement channel should bring more vendors (from the current 3.2 lac) onto the platform.
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