Startup sector expected more from Budget 2021

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Delivering a ‘first of its kind’ e-Budget on February 1, Finance Minister Nirmala Sitharaman made some significant announcements around fiscal and tax measures.

Within the broader direction of the ‘AatmaNirbhar Bharat’ agenda, the minister identified six core pillars for spearheading the economy back on its growth path.

There have been major announcements towards infrastructure, manufacturing, healthcare, education, labour reforms for migrant/gig-workers, and strategic divestment of certain public sector undertakings.

The idea appears to be to invest in longer term projects which will (hopefully) spur larger economic activity, which, in-turn, would spur employment and disposable incomes which should then drive demand and spending. All of this is expected to drive economic recovery to its desired track.

In tax proposals, the theme appeared to be towards simplification of tax administration procedures, ease compliance burden for taxpayers and to reduce tax litigation.

In line with the aforesaid theme, proposals have been introduced to reduce the timelines for completion of tax assessments; proposal to introduce a dispute resolution committee for small and medium taxpayers; introducing a faceless (and jurisdiction-less) regime under the tax tribunal for tax dispute resolution; increase in turnover limits to Rs 10 crore for the mandatory annual tax audits; extension by one-year for profit-linked exemption ‘eligible’ start-ups and for capital gains exemption for re-investment into ‘eligible’ start-ups; proposal to introduce pre-filled tax returns with certain income streams to enable efficient tax filings, etc.

In the context of business combinations and/or divestitures, it is being proposed to explicitly widen the scope of the ‘slump sale’ definition to include all types of transfers therein, and it is also being proposed to restrict tax depreciation claims on goodwill of a business/profession. Separately, with an intent of rationalisation of equalisation levy provisions for cross-border transactions, it appears that the scope is widened with certain clarificatory provisions introduced by way of explanations to the applicable sections (which will largely impact e-commerce players operating from offshore) and TDS provisions also being introduced for purchase of certain goods.

Having said all of the above, a space where touch more could have been done would be for the multiple ‘home grown’ start-ups which have played a key role (especially in the e-commerce area), including in the midst of the pandemic, in ensuring that employment was retained, ensuring that essential services (including in particular food and medical supplies) were delivered to customers (with minimal disruption of supply-chain), and in continuing to secure their positions in the eyes of the global business/investor community.

Essentially, start-ups were keenly awaiting definitive direction from the Budget proposals enabling them towards the path of public listing (including direct offshore listing, which has been an ask for a while by start-ups), relief in terms of tax withholding provisions on revenue streams (to avoid cash lock for loss-making companies), relief in terms of GST levy on the input side (which is of particular relevance to early-stage companies which are pre-revenue), deferral of taxability on share swap transactions (absent cash liquidity) which are of particular relevance to resident Indian founders, etc.

Specifically, within the fintech space, where multiple start-ups have played a major role in digitising the economy in the payments and/or the lending space (including in particular having an outreach to a large part of the Indian population which is largely un-served/under-served), announcements were expected around easing measures around RBI licensing, easing MDR norms, etc.

 Ankur Pahwa is Partner and National Leader, E-commerce & Consumer Internet, EY India. Views are personal.