Government approved start-ups will now be eligible for an income tax holiday for three consecutive years during their first five years.
By now, the headline proposals in Finance Minister (Arun) Jaitley’s third Budget have been analysed to death, and the details gone over with a fine-tooth comb. On first impressions, this Budget seems wholly in line with the Prime Minister’s vision of ‘Sabka Saath Sabka Vikas’: Large increases in social and agricultural outlays, emphasis on infrastructure building, and protection from risk to the ‘aam aadmi’ through inclusive crop and health schemes. Funding for all this has been found in part by levying Robin Hood taxes on the wealthy.
For the AIFS (venture capital/private equity sector), the Budget left everyone a little unhappy but not too unhappy, as is wont in Indian family settlement. For start-ups, the Budget has delivered on the PM’s promises made during the start-up event on January 16. Government approved start-ups will now be eligible for an income tax holiday for three consecutive years during their first five years of operation. For investors in start-ups, the long-term capital gain arising out of sale of any asset, when invested in specified funds (up to Rs 50 lakh per fund) or in their own start-ups, has been exempted from tax. Innovation has been given a push, with a low tax rate of 10 per cent for income from global use of patents registered in India. There have also been promises of amendments in the Companies Act to improve the enabling environment for start-ups.
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But, the budding start-up system cannot and should not be built entirely on an edifice of tax give-aways. Sops inevitably create saps. Given the cut-throat competitive landscape in which today’s start-ups need to thrive, success depends solely on a sharply honed competitive edge, built on passion, capability and business smarts, not subsidies.
This is where the real point of this Budget becomes evident. It has scores of proposals that don’t only help out the Bharatiya Janata Party’s core constituency of the MSME (micro, small and medium enterprises) owner but also opens new fields for exploration for his sons and daughters looking to foray into entrepreneurship. A tidal wave of exciting opportunities will come from initiatives that underpin the Rs 80,000 crore (20per cent) increased allocation for agriculture, the rural sector, the social sector and infrastructure.
Some real examples are: A unified agricultural e-market (by amendment of the APMC act), which will arm farmers with direct, disintermediated access to national marketplaces; the Digital Literacy Mission to cover 60 million additional households along with entrepreneurship education and training through MOOCs; digital depositories for academic documentation; new health insurance scheme to provide cover for one-third of the population of India at the base of the pyramid. The addition of 10,000 km of national highways and 20,000 km of state highways, coupled with the opening up of road transport sector from ‘Sarkari’ (state) control now makes the vast market of bus transportation (60 per cent of all transport in India) accessible to every entrepreneur.
These are the opportunities the reforms should unleash for capable start-ups, which could be funded by the many start-up funds seeded and incubated by the Rs 10,000-crore India inspiration fund, the government-sponsored fund of funds.
Effectively, therefore, these measures ensure the playing field for home-grown start-ups has the potential to go up by an order of magnitude, from the 100 million people living in ‘India’, to a billion more people who live in ‘Bharat’. The hidden message of the Budget is now quite obvious. It has opened a magic door of opportunity, whose promise enthralled the 2,000 young men and women who gave Modi a rousing reception at his speech at the ‘Start Up India, Stand Up’ initiative conclave in January.