Limited Period Offer:Be a PRO for 1 month @Rs49/-Multiple payment options available. Know More

Union Budget 2021 Startup Expectations: Accelerate growth by releasing the regulatory brakes

While past budget announcements were welcomed by all start-ups, the fine print of the regulations read differently from their intent and the benefits were available only to a limited few, based on a cut-off date and registration criteria.

January 28, 2021 / 07:42 PM IST

While multiple sectors of the industrial economy and ICT (Information and Communications Technology) have done their bit in bringing India this far, the next exponential jump for taking India towards a $5 trillion economy depends on the start-up story.

Start-ups and disruptive business models are poised to lead India towards economic growth, innovation, ease of living, livelihoods and a connected economy. While the societal thinking shift is happening from job seekers to job creators, the entrepreneurial thinking is from India to the world.

The Prime Minister recently addressed “Prarambh”, the Start-up India International Summit, marking the fifth anniversary of the Start-up India initiative with members of BIMSTEC countries participating. While the highest levels of government acknowledge the importance and need for start-ups to grow and thrive, several fine print regulations of the past and present unfortunately ensure that this acceleration is complimented with power brakes applied.

A significant number of compliances, costs and duplication issues for start-ups are around direct taxes and policies covered by the Budget and an equal number from GST, that lies outside the purview of the Budget with the GST Council.

Reforms & Growth thrust

Close

With Budget 2021 likely to be the country's first National Paperless Budget, start-up founders and investors have varying expectations and clearly wish to hear big reforms and freedom from complicated and unnecessary compliances that have locked valuable working capital.

Announcements made in earlier budgets need to be taken to their logical conclusion like ease in ESOP taxation, Single Investment clearance cells, Ease of Doing Business, FDI Clarifications, a TV channel or program for start-ups similar to the famous Shark Tank.

The wealth creation potential of start-ups can be easily tapped if listing probabilities are unlocked in our stock markets.

After having undergone multiple rounds of capital infusion and investor due diligence, it is ideal for listing norms to be eased around minimum promoter contribution and lock-ins to ensure an India listing for start-ups. While Differential Voting Rights and IGP relaxations are steps in this direction, yet the sector awaits this reform.

Policy & Tax changes

FDI policies and their applicability to start-ups in different sectors like B2B ecommerce, news aggregation need to be relaxed to enable them to compete against global players.

While tax regulations like Section 194(O) have resulted in severe compliance costs for regulated sectors such as travel, airlines and insurance, they have also added to the huge administrative burden of start-ups as well as the tax department by taxing small MSMEs, traders, plumbers, electricians, salons etc., thereby increasing the volume of assessees but earning fractional revenue.

Similarly, the salaried class pay taxes and are now subject to further tax deducted if they spend for overseas travel under Section 206(C) from Indian travel operators. This provision unfortunately encourages Indian customers to shift to online foreign based operators to save tax and creates an uneven level playing field for Indian operators.

While past budget announcements were welcomed by all start-ups, the fine print of the regulations read differently from their intent and the benefits were available only to a limited few, based on a cut-off date and registration criteria.

Since ESOPs help to attract critical talent for a start-up to take off, this taxation ideally should be levied at the time of exit or lapse of a specified timeframe and coverage criterion relaxed.

Section 72 of the Income-Tax Act needs a review post Covid-19 pandemic and businesses should be permitted to carry forward losses for 10 years, from the current 8 years. Section 79 requires an ease around the restriction of carrying forward and setting-off of business losses, especially based on shareholding and voting percentage.

Tax rates for the salaried classes, including increasing threshold limits for the super-rich, are a must to ensure disposable income is available for boosting consumer spending and investments in start-ups. Sec10(13A) and Rule 2A changes would benefit HRA allowance to consider rented furniture, white goods to qualify for tax deductions and unlock renting/leasing start-ups and an annual depreciation deduction section be explored for individuals buying electric vehicles.

As an industry body representing start-ups, IndiaTech.org has been consistently advocating the benefit of the start-up ecosystem, and to be fair many of the demands have been looked into and partly addressed in various forms by the government, but now is the time to go for growth minus brakes.
Rameesh Kailasam is CEO at IndiaTech.org, an industry association set up by Founders of Indian Internet based start-ups and unicorns representing interests of Indian internet consumer companies and their investors.
first published: Jan 28, 2021 07:42 pm

stay updated

Get Daily News on your Browser
Sections