With an aim to incentivise the emerging economy, Finance Minister Nirmala Sitharaman announced a slew of measures for startups and their investors including extension of capital gain tax, tax holidays for startups, easing norms for one person company, among others.
While some of the moves were welcomed, the industry felt some were too little too late.
The move to allow tax holidays for instance received a lot of criticism. Many argue that startups do not start making profits in the first few years of operations. So, the tax incentive will not be applicable to a majority of them and extending it by one year is unlikely to move the needle except for very few firms.
"Startups had a five year tax holiday under the Startup India Scheme. The only logic appears to be that 2020 was a lost year because of COVID-19, so the government added one more year of benefit," said Avimukt Dar, founding-partner, IndusLaw.
He, however, added that tax holidays often get extended by the government where stimulus is needed. The catch is that many start-ups actually benefited due to COVID-19 while many did not. However, it would be too much to expect sectoral targeting of this kind of stimulus beyond the broad categorisation as start-ups.
The extension of capital gains exemption for investment in startups, on the other hand, was applauded by one and all.
"The measures announced by the government demonstrate its bullishness towards the startup ecosystem. The extension of long-term capital gains by another year will offer tailwinds to early stage funding," said Paavan Nanda, Co-Founder - WinZO Games.
According to Nimesh Kampani, President - LetsVenture Plus, the government has opened more channels of investments in India by providing incentives for setting up one-person-companies, allowing NRIs to incorporate one-person companies and reducing the residency time to 120 days.
This move will provide a wider spectrum for the startup community to work around at a time when the tax holiday and capital gain exemption extension by one year will help ups recover from the pandemic situation.
The government has so far recognised 41,061 startups out of which around 39,000 startups created over 4.7 lakh job opportunities till December, according to the Economic Survey released last week. The country is now home to 38 unicorns, with at least 12 startups getting added to the list in 2020, it added.
“To best arrest the aftermath of a COVID-19 ridden economy, job creation should be at the core of reforms. While the budget has rightly tried to address this through infrastructure sector reforms, benefits for startups - which are equally important - seem to fall short of the want. It would have been good to see more ‘ease of doing business' measures being announced for startups, such as permitting short duration ECBs, creating single window clearances and lower compliances requirements that go beyond increasing the threshold limit for qualifying as a small company under the Companies Act and extending the existing tax benefits for another year," said Karan Kalra, the founder of Bombay Law Chambers.