July 12, 2019

Budget 2019 – 2020: A boost for Indian Start-ups 2.0

Fintuple speak


The start-ups in India had a big expectation on budget 2019. However, I believe the startups did receive a favourable SOP on multiple angles from the budget. The budget has clearly addressed the challenges of increased businesses for start-ups, unemployment, improvement in online filing provisions and encouraging the foreign start-ups to sell in the Indian market. No doubt, Indian start-ups have created more amount of jobs in recent years and many are also expanding it overseas. India has become a place for innovation and it’s well addressed by Finance Minister Nirmala Sitharaman in her maiden Union Budget for 2019 – 2020.

Angel Tax:

Past: Since its launch from 2012, many start-ups had to pay ‘angel tax’ in which the government basically imposed a tax for the unlisted companies raising capital that were issuing shares at a premium and higher than fair value as per Income Tax Act. This was a hindrance for entrepreneurs for raising growth equity capital for their companies. It was also an unfriendly tax as it is not possible to calculate the fair market value of a start-up. The startups were the recipient of multiple notices from the IT department, which had an impact on how angel investors viewed the startup eco-system.Present: Finance Minister has taken a right move to resolve the issue by withdrawing the angel tax if the start-ups and their investors file requisite declarations and provide information in their returns in which case they will not be subjected to any kind of scrutiny in respect of valuations of share premiums. The major advantage is the launch of the e-verification process for start-ups especially when they raise funds, they will provide a bankable and transparent control to the IT department. This has shown a big welcome among start-ups as they don’t have to spend more time on angel tax scrutiny by the IT department if they file requisite declarations properly.As it stands, it depends on how the entrepreneurs would make the best use of these gateways provided by our government. If the companies file their requisite declarations on a timely basis, they can save lot of time and the start-ups can pump-in more funds into their business to grow. This also helps them to raise their own capital and can also develop their business.The most important aspect that has gone unnoticed is the social stock exchange through which social entrepreneurs will be able to raise money. The government should also plan to arrange global investors meet in India which will boost the early stage of investment in the start-up ecosystem.

Start-up Industry focus - Innovate India:

2019- 2020 budget seems to be a lot more favourable for transforming the nation into a Digital economy which in result helps the country to reduce paper works. But it didn’t discuss more on AI and Big Data start-ups which are currently in a booming period. The government should bring more funds and invest in technologies related to AI and Big Data. They also should provide special schemes where entrepreneurs are encouraged to begin their start-up in this domain, for example, providing tax benefits. This measure should be addressed by the Finance ministry either by next budget. This new field will also address the severe skill-shortage of technology and IT industry. Hence equipping the entrepreneurs and start-ups with new skills will boost the probability of achieving the goal to take the country from the current 3 trillion economy (almost) to a 5 trillion economy.For this kind of issues, government support is much needed for constant innovation, and policymakers should enable this in the start-up space. To reach these objectives, both the State and the Central government, with the help of Indian based start-ups should focus on a sustainable future. It is much needed to allow start-ups to help them grow, seek revenue opportunities and unlock their potential in the market. This Union Budget is truly for the ‘Developing India’ that the country celebrates.

Indian start-ups can be globally competitive:

The government is taking a lot of decisions in favor of Indian startups. But we can be globally competitive like other countries if the Indian government initiates more new policies and steps. Few countries in the world have no capital gains tax on the sale of shares by investors in startups, and have a lower tax rate for startups. The government should align the rules according to global practices or with the tax incentives offered by other countries. This will create a positive macro environment for the startup ecosystem driving innovation and growth, which I believe will be the backbone upon which the 'new India' evolves.