As one of the flagship policies of the current government is the “Make-in-India” program, Indian businesses both large and small had serious expectations from the 2016 Budget. In this post, we will breakdown the current budget and share the most relevant developments for you, as a small business owner. The Current State of Startups Startups form a substantial portion of the economy in terms of services offered and innovative products launched. According to the Times of India: 15 startups come into being every day 72% of the founders of these companies are under 35 years of age The 2016 budget sought to allow the creation of more startups in non-traditional fields and put in the following strictures in order to promote growth and expansion:
- Startups that delve into innovation development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property saw a huge boost with a 100% exemption on the first 3 years of profits and gains. This will be applicable for startups that are founded before April 1st The budget also reduced the number of years from 3 to 2 where investors in unlisted companies can receive capital gains treatment. While this might seem, on its face a positive move, it has received mixed reaction as many technology entrepreneurs have pointed out that profits in the first three years of any tech startup is normally low to negligible. While others hailed the moved as one that uncorked cash flow that could then be allocated into product development and expansion of businesses.
- The budget proposed to increase the tax exemption limit to 2 crores- twice the value of the previous limit. Experts predict that this increase will enable startups to increase production as well as innovate in terms of the technology that is available to them for production. The Finance Minister cited that 33 lakhs small businesses availed of the current exemption limit. The doubling of the limit will see this number grow significantly in the years to come.
- The budget also allocated INR 500 crores under the ‘Stand Up India’ scheme for SC/ST and women entrepreneurs to encourage individuals from these groups to create more business opportunities. Apart from this, the budget also set up a fund of INR 2500 crores to annually fund startups for four years.
- Another proposal was the reduction of the rate of corporate tax to 29% for companies with turnover not exceeding 5 crores. This would free-up funds for numerous startups across the country in an important stage of their formulation.
- The finance minister also proposed, through the introduction of a bill to amend the Companies Act, 2013- a simplified “One-day Registration” of companies. This was an announcement that was widely appreciated as the red tape and bureaucracy associated with starting up has been a massive obstacle for a large number of startups- tying up resources most startups cannot afford to spare.
- The Make-In-India program also received a shot in the arm with the announcement that those who adhere to certain conditions would experience 100% profit exemptions- a piece of welcome news to Indian manufacturing units that face stiff competition against imports.
All in all, while startups received a great deal to be pleased with, the overall tone of responses has been with mild with the startup community’s expectation from the government at an all-time high.