Union Budget 2020: Here’s how the fintech industry reacted

The budget does meet some of the expectations from the FinTech industry and start-ups. The introduction of some sort of a tax relief on ESOPs was one of the biggest asks from the start-up industry - this deferment of tax payment by five years, to me, is one of the biggest welcome moves by the government in this budget. This is a good start and I hope we see more focus on this going forward. Secondly, the reduction on corporate tax to 22% is an encouraging step. This is the lowest in the world and will be encouraging for Indian businesses.

Lastly, the changed income tax slabs and rates is not only a huge income tax relief for individuals but will also lead to an increase in disposable income, thereby giving a boost to consumer spending.

The Union Budget presents an investor-friendly outlook to help attract investments from all quarters. The abolishment of the Dividend Distribution Tax is a positive step that will go a long way in ensuring that investments in the country go up. This step is especially beneficial for Foreign shareholders who will now be able to get a claim on such tax payments in countries of their origin. This would boost investments across the spectrum and in turn create employment opportunities.

Another positive from the Budget is the change in the income tax slabs which will give more disposable income to the Indian working population thereby spurring consumption. From the perspective of start-ups, deferment of tax payment on ESOPs is a positive step and so is the increase in the turnover limit to Rs. 100 Cr for availing tax benefits.

The Union Budget 2020 looks keen on taking the country towards a decade of growth. Union Finance Minister Nirmala Sitharaman has tried to strike a balance between welfare and corporate stimulus. Growth through the rural economy, manufacturing, infrastructure and tax reliefs seem to be the larger theme. Better days for start-ups and MSMEs are ahead. I’m especially looking forward to the launch of app-based invoice financing loans for MSMEs. Deferred tax on ESOPs is huge - it will reduce the tax burden on employees and help start-ups grow much faster due to the lowered cost structure in hiring & retaining better talent.

We welcome deferment of perquisite taxation - now taxation at the time of 'exercise' deferred to 5 years or till they leave the company or till they sell their shares - whichever is earlier. This will be a key plank for hiring quality resources. Raising the turnover threshold for audit for businesses to Rs 5Cr is a welcome relief. Hopefully, tax filing for such businesses will also be simplified. However, such businesses will have to be careful with keeping cash transactions under 5% and will need a technology-based mechanism to track that.

Further, it is a complex tax regime for taxpayers with the slabs rejig. With the optional new regime, taxpayers will have to evaluate what works better. Those committed to long term saving and investing via 80C may be discouraged and this may likely demotivate taxpayers from tax-saving linked investing. DDT removal is good as it increases dividends received in the hands of the taxpayer - however, such receipts to now be taxable in their hands. Those above 20% tax slab - will now face more tax on their dividend income.

The focus on enabling growth for MSMEs in today's Union Budget is encouraging. Enabling NBFCs to extend invoice financing to MSMEs through TReDS, should enhance opportunity to fuel the Indian economy and widen the acceptability and trust by the BFSI sector. The extension of GEM e-marketplace as a unified procurement channel should bring more vendors (from the current 3.2 lac) onto the platform.

Additionally, amendments to Factor Regulation Act 2011 should boost the MSME sector. On the Debt Recovery side for lenders, the allowance to smallers NBFCs to approach the DRT for smaller ticket size loans, would be beneficial in lowering NPAs & improving the asset quality. However, we expected to hear more clarity on the scheme to provide subordinate debt to be provided by banks for entrepreneurs of MSMEs since less than 15 % of the 50+ million Indian Small businesses have access to formal credit and there is a debt financing gap of the SME is over $1 Trillion.

By allowing data centre parks in the country, the government has set a positive sentiment for the industry. While this will allow better infrastructure in storing and dissemination of data, we were expecting the government to touch upon incentives for setting up data centres which will allow Fintechs to scale faster at an economical cost. This coupled with the extension of Bharat Net (FTH) to 1 lac gram panchayats would add a significant boost to the Digital push in the country.