Author - Associate Aliza Abdin

The Union Budget of India also known as the Annual Financial Statement (in the constitution of India under Article 112) is presented every year by the Finance minister. Its presentation is one of the most awaited events of the year. This statement that gives the estimated account of the expenditures and receipts of the government for one fiscal year (from 1st April to 31st March) is divided into two parts- Revenue Budget and Capital Budget. Both of these include revenue receipts, loans from the public, foreign governments and capital expenditure on machinery, equipment, building, health facilities, education etc.

IMPACT OF BUDGET 2019 ON START-UPS

After budget 2018, India has emerged as the third biggest startup center in the world with a total funding of approximately $4.3 billion in the last financial year (2018).  A number of start-ups came into being and almost eight startups achieved the unicorn status and the startup community has also created thousands of jobs (as many as 40,000) for the youth and are still expanding their businesses to foreign land.

And thus, the startups had high expectations from this year’s budget in order to expand their businesses even more. The Indian Government in order to make an Innovative new India has not failed the expectations of the startup community and has tried its best to connect the dots of the startup community by presenting a budget in their favor.  The government aims at fostering the spirit of entrepreneurship in the youth, and keeping in mind all these objectives the budget of 2019 has been presented.

The Startups have received major lift from budget 2019 from the following schemes:

1. The government plans on setting up a new TV programme on DD National especially for startups in the country: The first ever TV show dedicated to startups started by the Finance Minister Nirmala Sitharaman will air on DD National every Sunday at 5pm. It will include the discussions on the growth, funding and tax planning of startups by experts from startup India.

 2. Tax Exemptions: Section 54GB of the Income Tax Act, 1961 gives an exemption of tax on the overall gain made by selling or reselling a residential or domestic property or any piece of land on the condition that the amount thus earned has to be invested in equity shares of a start-up company. The company had to then use the amount to attain new assets.

This exemption was valid only if the original asset was transferred between April 1, 2012 and March 31, 2017 or in case of investment in an eligible start-up till March 31, 2019. However, as of now by the latest amendment, the exemption is now extended until 31 March 2021.

3. Incubators: As many as 80 new livelihood and approximately 20 new technology incubators were declared by the budget 2019. The main goal of these incubators is to aspire entrepreneurs to come up with their own start-ups.

4. Conditions of Section 79 relaxed to allow an eligible start-up to carry forward the losses: To provide a better environment and better opportunities to eligible startups it is suggested to amend section 79 in order to revive the loss incurred by eligible start-up. The amendment will allow it to be carried forward and set off against the income of the previous year if it fulfills two conditions:

•    continuity of 51% shareholding

•   continuity of 100% of original shareholders

 ANGEL INVESTORS

Angel Investors are usually rich people who give financial support to small startups and enable them to build a business of their own. In most cases the angel investors are family relatives or friends who help entrepreneurs get their business off the ground. The funding by angel investors may be a one-time thing or an ongoing investment by becoming a shareholder and helping the company grow out of its difficult initial stages.

Angel investors are very different from lenders because they focus on helping the company grow unlike the lenders who only focus on their profit generated from the business and harass them for the money in case of loss. As easily understandable from the word itself, ‘angel’ investors are in the form of angels and help the company reach its highest peaks.

Impact of Budget 2019 on Angel Investors 

Exemption given to Category II AIF from 'Angel Tax': “As per section 56(2) (vii b), if a closely held company receives, from any resident person, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares is taxable as income from other sources.

 However, exemption from this provision has been provided for the consideration received by a venture capital undertaking from a venture capital company or a venture capital fund or by a company from a class or classes of persons as may be notified by the Central Government in this behalf. As of now the benefit of exemption is available to Category I Alternative Investment Fund (AIF). The Finance Bill, 2019 proposed to amend this provision to extend the exemption to capital received by venture capital undertakings from Category II AIF as well.”

(This will be applicable from the Assessment Year 2020-2021).