Start-ups have huge potential to be the growth vehicle of the future economy. Amid the ambitious targets of the 5 Trillion dollar economy, these Startups are destined for a big role. Let’s review what are the expectations of Indian start-ups from the upcoming budget of 2021 to be presented on 01st February 2021.
01. Relief from Tax on ESOPs
Employee Stock Ownership Plan (ESOPs) play a very important role for start-ups. It plays a dual role both in attracting the best talent for these companies and also to retain these talents longer.
It helps start-ups in motivating the employees by making them the real stakeholders with ownership in the company through shares as part of compensation.
The government has already provided benefit in the last budget by deferring taxing of ESOPs by five years or when they leave the company or when selling their shares.
But these start-ups are required to be approved by Inter-Ministerial Board (IMB). There is an estimated figure of 400 start-ups that so far have were approved to claim this benefit.
The start-ups have been demanding it for since long to extend the benefit to all the start-ups registered with DPIIT and forgo the requirement of getting registered with IMB.
02. Ease Listing of Startups
SEBI has been making efforts to ease the norms for the stock market listing of startups. In spite of all these no start-up has been listed in the Indian stock market so far. Therefore, more reforms are expected in this area and this budget throws an apt opportunity to bring these reforms.
Further startups have been demanding permission of direct listing on overseas stock exchange without the requirement of first floating shares in Indian stock exchange.
The listing norms could be eased for the startups such as minimum promoter contribution and lock-in period to ensure the listing of Indian start-ups facilitating investments for them.
Easing the regulations for listing on the stock exchange would help encourage entrepreneurship as it would resolve investment issues.
03. Lesser Compliances for Start-ups
Start-ups obviously are expecting the government through this budget to lesser the compliances and facilitate ease of doing business. The government has made long strides in this area where registration and compliances have been reduced. But still, considerable steps are required regarding this and it is to be seen what more government has to offer in this regard. Easing of compliances and filing guidelines would only pave the way for Startups to flourish
04. Encouraging Domestic Investment
Most of the start-ups get their funding from foreign companies such as the US and China. Presently more than 80% of the investment in unicorn start-ups is from foreign companies. In fact, as per a report published in the leading business newspaper daily, there is more than Rs. 30,000 crores of Chinese investment in Indian growth companies and currently Chinese companies have invested in 18 out of 30 Indian unicorns.
There is a huge need for domestic funding for Indian companies.
The budget could bring some policies or schemes to encourage the domestic investors to put their money in the start-up.
05. Exemption from Capital Gains
There has been a demand to exempt capital gains on investment made by AIFs in start-ups.
In September 2020, a parliamentary committee headed by former Minister of State Finance Jayant Sinha has already recommended abolishing of long-term capital gains (LTCG) tax on investments made in DPIIT approved start-ups through collective investment vehicles such as angel funds, alternate investment funds (AIFs), and Investment LLPs.
It is expected to be announced in this upcoming budget. The step would undoubtedly be a great encouragement for domestic capital to be invested in the starts up.
06. Income Tax Deductions/Relief related to Covid-19
This year has been hard for the businesses especially the ones which are still in nascent stages. On one side where due to lockdown there was the loss of revenue on the other side the companies had to empty out the pockets to keep themselves afloat. Start-up companies would be expecting this budget to provide deductions or tax relief on account of the Covid-19 pandemic impact.
07. Relief from Tax Burden
Section 194(O) of the Income-tax Act has increased the compliance cost for start-ups as it requires every e-commerce operator to deduct 1% TDS on all goods and services. The start-ups have been asking for relaxation from this TDS section.
Further the complicated GST compliance procedures have made the tax compliances very tough for the start ups.
The start ups are known for creatively putting up a product in the commerce way and therefore may be kept aloof from the nitty gritty of the taxes at least in their incubation stage to concentrate on the product and the business. The young start ups can in future lead to higher returns for the government. So the success of these start up should be facilitated by removing the excess tax burden.
08. FDI Rules and VC fund
Relaxation in FDI rules for e-commerce start-ups and establishing Special Venture Capital fund are the other expectations by Indian startups from the Budget 2021 to be presented on 01st February. 2021.
09. Support to technology upgradation
The government should provide capital subsidy support on technology upgradation.
In this digital era, all start-ups rely on technology therefore the government can also take steps through this budget to make the technology knowledge easily accessible in rural areas so the untapped rural power can be utilized.
Special benefits can be announced for startups operating from rural areas or for the start-ups in agriculture-related fields. Required technology assistance to those may be provided by the government institutions.
10. Boost to Manufacturing in India
This demand from every sector which also fits perfectly the expectation bill of start-ups is that government should reduce the import duty on raw materials while increasing the import duty on finished products. That will boost those start-ups and MSMEs which are engaged in manufacturing.
