Blog Details

The Finance Minister Arun Jaitley announced the Finance Budget today. He announced a slew of schemes and tax benefits. The budget focused on nine pillars— Agriculture and farmers' welfare, social sector including healthcare, education, skills and job creation, financial sector reforms, ease of doing business, rural sector, fiscal discipline, tax reforms to reduce compliance burden and infrastructure.

The government seems to be pushing the cause for Startups effectively, only time will tell if these reforms will contribute to India's growth.

Drawing out on previously announced ‘Startup India’ plan, the Finance Minister made a series of announcements, thus giving startups a special place in the budget.

The ‘Startup India’ plan defined ‘startup’ for the purpose of government schemes as an entity registered within last five years, with annual turnover not exceeding INR 25 crore in any preceding financial year and working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

The Government announced its intention to ease up the process of registration and enable entrepreneurs to register company within a day. This coupled with initiatives to encourage entrepreneurship among SC/ST people will give people more incentives to become entrepreneurs.

100% Income Tax Deduction for three years over 5 years

Intent of the Government to promote start-ups in India can be gauged from the 100% Tax deduction for three years, which has been proposed by the Finance Minister. This would enable the entities to find their feet, without having to worry about an added expenditure during a time when revenues are speculative to say the least.

Capital gain exemption proposed for investment in start-up

In order to incentivise the investors to fund these new ventures, Capital Gain tax (which is applicable on sale of certain assets, in this case, shares or stake in the company) has been exempted on Start-ups. In order to circumvent the requirement to pay Capital Gain Tax, the investors used to route their investments through Mauritius, where the Corporate Tax rate is 0%. This exemption would prevent a lot of legal and financial hassle for the investors.

Registration of Companies should be given in one day - Companies Act proposed to be amended

The Finance Minister Arun Jaitley spoke about amending the Companies Act, 2013 to further simplify the registration of Companies. Taking a cue from the Prime Minister’s vision to have an app based Registration of start-ups, the proposed amendment would ensure early mover advantage in such ventures, which are time sensitive in nature.

Corporate tax reduced to 29% for small business having turnover less than 5 crores

A move which did not specifically focus on start-ups but would have a direct and substantive impact on start-ups is the proposed reduction of Corporate Tax from 30% to 29% for small businesses which have a turnover of less than Rupees Five Crores.

National SC/ST hub will be created to provide professional support to SC/ST entrepreneurs

The Government has focussed on inclusive growth in this Budget. Rather than being job seekers, the focus is on the youth becoming job creators. To facilitate the people  from Socially backward classes, the creation of a National SC/ST hub has been proposed to provide support to them. This would ensure that a person having certain innovative ideas would suffer due to inadequate knowledge relating to finances and procedures.
The Union Budget 2016 is very promising for start-ups as the focus is on providing adequate fiscal support, while simplifying the procedure at the same time.