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Budget 2017: Four proposals that would make start-ups smile

By Goutam Das     February 1, 2017

The budget document has just one paragraph on "start-ups" and three references. But a closer examination highlights a lot more. Here are some of them:

1. The Finance Minister has proposed to increase the period for profit linked deduction. Start-ups can now claim deduction for three years in a seven-year window versus five years earlier. The longer window is important considering that most start-ups don't make profits in the first five years. However, the tax holiday is applicable from April 1, 2016. "This doesn't help a majority of the start-ups who have already raised money and are operational," says Vidhya Shankar, Executive Director, Grant Thornton India LLP. "It should have been effective from 2012 or 2013. Only then can the start-ups make the most of these policies."

2. The tax reduction for MSME companies would be applicable to start-ups as well, considering they make profits. The Finance Minister has proposed to reduce the income tax for smaller companies with annual turnover up to Rs 50 crore to 25 per cent from 30 per cent earlier.

3. The government wants to create an eco-system to make India a global hub for electronics manufacturing - a tall aspiration. However, the budget does make an attempt towards the right direction. The Finance Minster said: "Over 250 investment proposals for electronics manufacturing have been received in the last two years, totalling an investment of Rs 1.26 lakh crores.  A number of global leaders and mobile manufacturers have set up production facilities in India.  I have therefore exponentially increased the allocation for incentive schemes like M-SIPS and EDF to Rs 745 crores in 2017-18."

While this could help larger companies, this is also good news for start-ups, particularly in the Internet of Things (IoT) sector. Going forward, one can hope to see local manufacturing of products such as sensors. A boost to the local manufacturing of POS card readers, finger print readers/scanners and iris scanners can be expected because of a proposal to exempt BCD, Excise/CV duty and SAD on these devices.

4. The budget's stress around "digital economy" will help start-ups across many sectors. Let's consider the allocation under the BharatNet Project. The Finance Minister has stepped up the allocation for BharatNet Project to Rs 10,000 crore in 2017-18.  "By the end of 2017-18, high speed broadband connectivity on optical fibre will be available in more than 1,50,000 gram panchayats,  with WiFi hot spots and access to digital services at low tariffs," he said during the budget speech. This implies a boost to rural e-commerce, education and telemedicine. The impact on private fin-tech start-ups is less clear. Sony Joy, Co Founder and CEO of Chillr, a fin-tech start-up says that launching of schemes and incentives for digital transactions is a great move. "But unfortunately, it is only promoted across government platform. Private fintech companies should also be invited to participate in this disruption and innovation," he says. To promote digital transactions even more, there could have been some rebate on income tax for payments made digitally. "We were expecting at least a direction towards it in the future, if not an immediate implementation," he noted. 


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