Budget 2017: Good news for startups! FM may raise tax holiday to 5 years

Gaurav Choudhury and Shreya NandiMoneycontrol

The government may announce a string of initiatives to support the country’s startups, including widening of the tax-free regime to five years from three years and faster procedural clearances.

The move which is likely to be announced in Budget 2017-18, will come a year after PM Narendra Modi launched the “Start-Up India” programme in Delhi in January 2016.

Under the initiative, PM Modi had made a raft of announcements including a three-year tax-free environment for startups in the country. The move, however, had faced criticism as three-year tax breaks may not yield benefits given that small-bore, innovative ventures struggle for years to break even.

The government is also likely to make it easier for founders to exit their companies, responding to concerns about difficulties in shutting down a company in India, sources in the know told Moneycontrol.

It may also announce measures to encourage startups’ participation in government purchases, which now have rigid qualifications based on experience and turnover.

India is home to the third-largest number of technology startups after the United States and Britain, and they attract billions of dollars in funding every year, despite byzantine government regulation and red tape that many investors often complain.

Currently, the Department of Industrial Policy and Promotion (DIPP) -- the nodal agency under trade ministry on startup policy-- is also in discussion with the Finance Ministry for service tax exemption for startups, along with relief towards some income tax related issues.

Startups have sought relief from the government on issues related to income tax, where the classification of business-income influences the tax levied on them.

With some public cause serving startups defining business-income differently from the rest, DIPP has sought the finance ministry’s view on how to deal with such cases.

Last year, in addition to the tax breaks, PM Modi had announced an 80 percent exemption in patent fee for startup businesses, and said that a self-certification based compliance system for such companies would be introduced for nine labour and environment laws.

Atal Innovation Mission, which the finance minister had announced in the Budget 2015-16 with an initial corpus of Rs 500 crore to boost innovation may also see a rise.