However the Budget may not be too bad for digital startups. If you are running any online startup, lets see how it impacts you.
If you are running any online startup, lets see how it impacts you.
If you are a startup founder running a ‘profitable’ business with a turnover of less than Rs 50 crore annually, you should feel happy that the tax rate effectively is now cut to 25 percent from 33 percent earlier.
However, if your startup is yet to make profits or does not have a roadmap like the usual ventures in ecommerce, food tech or hyperlocal logistics, you may not have a reason to cheer.
The Finance Minister has extended the window for claiming a tax benefit from five years to seven years now. Now, your venture can claim a tax holiday on any three years starting April 2016 onwards. But if your startup was incorporated prior to year 2016 - too bad. There will be no tax holiday for you!
Wait, there is some more fine-print, too. If your company was incorporated post April 2016 but did not get approved by Department of Industrial Policy and Promotion as an approved ‘startup’, you won’t get the tax benefit either. If you did not apply till now, it may be the right time now.
How it impacts salaries of Startup CEOs and employees
So if you are a CEO of a funded digital startup here is how Budget 2017-18 impacts you.
If you or your top management draw a taxable salary of over Rs 50 lakh annually, be prepared to shell out more. The Finance Minister has levied a surcharge of 10 percent of tax payable on individuals' annual taxable income between Rs 50 lakh and Rs 1 crore.
If you earn more than a crore a year in net taxable income be prepared to shell out the same as last year in taxes. There is no relief. The existing surcharge of 15 percent of tax on people earning more than Rs 1 crore will continue. Thus, those entering the top or senior management for the first time will be the hardest hit.
However, freshers in a startup would be the most happy lot. If most of your employees earn an annual package below Rs 5 lakh, they will be least sharing their earnings with the government.
The existing rate of taxation for individuals earning between an income of Rs 2.5 lakh and Rs 5 lakh has been cut to 5 percent from the present rate of 10 percent.
There will now be a simple one-page form to be filed as Income Tax Return for those having taxable income up to Rs 5 lakh. Thus, even if employees are earning a little higher (say, Rs 6 lakh) with a few smart investments, they can get themselves down in the less taxable bracket.
For those earning income below Rs 3.5 lakh annually, the tax liability would be just Rs 2500 annually. Also, a person of this category who files income tax return for the first time there would not be any scrutiny. This is just a move to get them to file returns which they did not for fear of the taxman.
How it impacts a fintech startup or a cloth merchant
If you are a financial technology startup entrepreneur offering payment solutions, be prepared to be regulated now under a new body. The government plans to create a Payments Regulatory Board in the Reserve Bank of India. Whether it will be good or bad, only time will tell.
If you are any online startup that depends upon digital transactions, you may get long term benefits which may not be visible in the short term, as the full remonetisation of Indian economy is yet to happen.
In his address on New Year’s Eve, Prime Minister Modi announced conversion of 3 crore Kisan Credit Cards to RuPay debit cards in the next three months. This is likely to get more people to transact digitally in India.
About 1.25 crore people have till now downloaded the BHIM app so far. The government will launch two new schemes to promote the usage of BHIM namely the Referral Bonus Scheme for individuals and a 'Cashback Scheme' for merchants. An Aadhaar Pay app will also be launched for merchants which will make more people fall under the digitally transacting bracket.
Thus, there may be indirect benefits to digital economy in the long-run.
Finally, if you are a small offline merchant planning to buy a PoS machine, you may some reason to cheer. PoS machines, iris and fingerprint scanners may get cheaper.
The government has exempted basic customs duty, excise duty on miniaturized POS card reader for m-POS machines, fingerprint and iris scanners.
However, with the upcoming Aadhaar Pay app coupled with BHIM, you don't need a PoS machine either. Just download the upcoming Aadhaar Pay and authenticate customer’s fingerprint with a scanner. The user will be able to pay you directly from her bank account provided she has linked her Aadhaar number to the bank account.
The fingerprint and iris scan will become the debit card of future.
Conclusion: While there is nothing big for startups in the Budget besides the tax proposals on SMEs and those earning below Rs 5 lakh, the existing plan to push cashless transactions will benefit digital startups in the long-run. The long run can be expected to be 2018 or beyond.
However, 2017 will still be a challenging year for you. Consumer demand is yet to bounce back reeling from the aftermath of demonetization. It’s best to save for the troughs of this year and run bootstrapped. Sadly, Arun Jaitley did not address anything to revitalise consumer demand back in India’s bazaars. It was a missed chance.