Govt cautious about showing its affection for start-ups

The finance minister (FM) rose to present the Union Budget 2016-17 and along with it rose my heartbeat. In the run-up to the Budget, the investor community was hopeful about getting tax exemptions on angel investing, and start-ups were hoping for tax rebates and ease of doing business. The FM had something for everyone. It is clear that this government loves start-ups, but it is cautious about showing its affection. The Start-up India initiative got our hopes up on expecting more key announcements for the sector, but that didn’t happen.

The prime minister, in his Start-up India address, announced the setting up of a Rs10,000-crore fund for investing in start-ups. Clarity on accessing this fund was awaited in the Budget speech but nothing on that came through. However, start-ups did have a reason to cheer because the government has taken some small steps to simplify the taxation process by asking businesses with an annual turnover of below Rs2 crore to pay 8% of it. This will boost micro and small businesses and the reduction of a percentage in corporate tax for businesses below an annual turnover of Rs5 crore is a good step, too.

As an investor, this Budget didn’t give me a rebate on angel investing but removed capital gains tax for start-ups for two years and exempted them from corp tax for the first three years. That’s a good start and I still haven’t given up hope on the count of tax exemptions for investors, simply because it’s an idea whose time has come. The government may delay it, but sooner or later it is likely to be implemented. For a VC fund, it is heartening to see the government supporting start-ups, whether it’s about funding them, imparting skills to them, or starting or shutting down a business. These are the signals every entrepreneur and investor has been looking for from the Modi-led government.

There were a few key announcements, like the setting up of a Rs500-crore fund for Dalit entrepreneurs and clarity on taxation for e-comm companies, which are signs that this government doesn’t want start-ups to set up base in other countries for ease of procedural purposes and also wants entrepreneurs to emerge from every social strata.

Once the massive open online courses for youth and aspiring entrepreneurs from tier-II towns goes live, there will be a surge in entrepreneurship coming from start-up hubs beyond Delhi, Mumbai and Bangalore. The key challenge is to make sure they get the required support from the respective governments and the formation of an investor ecosystem in small towns in order to prevent the migration or shutting down of businesses emerging from these towns. Another key point in the speech was making the registration process of companies online so that it can be done in a day.

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Ⓒ 2016 Bhaskar Majumdar