The year 2016 has been a cocktail year for startups. A large percentage of startups bombed. There was a lull in the funding area. Private equity investments into India fell to $16 billion in 2016. Valuations slumped ( PTI reports).Startups also faced a tough time on account of the Singapore-India amended DTAA. There was a lack of clarity here which led to ambiguities and tax scares among Singapore investors. Another seed of worry was the angel tax. Then there was demonetization. Although pursued with an appreciable intent, it did cause some liquidity crunch. As long-term impacts, some sectors like FMCG, automobile, real estate are expected to face some brunt. In the given scenario, what are the top 5 things startup sector is expecting from Budget, 2017?

1.Easier tax structure and compliance environment- 

In general, Indian tax and regulatory compliance environment needs a serious makeover. More so in the light of anticipated decline in spending owing to demonetization. New IT rules have been proposed for this effect. As part of these rules, new tax slabs have been proposed.

We have discussed these in our previous article: Top 10 expectations of salaried employees from Budget 2017

A very specific expectation that has come up is the exemption from Minimum Alternate Tax (MAT). Industry Minister – Nirmala Sitharaman also reiterated that the startup community can expect some tax incentives.She further made promises to relax the rules of procurement with other government departments. This would include that startups will not be disqualified on the basis of the year of experience. Piping the same tune, Ramesh Abhishek, Secretary at DIPP, has informed DIPP is working with finance ministry over tax benefits for startups and bring clarity in various existing rules (Source: Times of India)

Special attention is required towards convertible instruments like compulsorily convertible debentures, convertible loans. Apart from these, the expectation for tax concessions on Employee’s Stock Options (ESOs) is also ripe.The demand for increasing the span of tax holiday period to seven years from the current three years can also be expected. NASSCOM, which has been working for the upliftment of startups recommended the removal of angel tax. Angel tax taxes the capital receipts by way of angel funds when financing from recognized sources such as banks and venture capital funds is unavailable.

2.Implementation of Goods & Service Tax (GST)-

The Government has been trying real hard to push the implementation of the Goods and Services Tax (GST). The winter session of the Parliament in which the matter had to be taken up was an epic failure. Post this the Parliament was supposed to conduct special sessions for GST implementation.Hence, this year’s budget is expected to bring some clarity regarding the action points and fast track the implementation of the GST regime.

Keep in touch with all GST related updates in our dedicated GST section: All about GST

3.Boost to promote cashless economy- 

The current Government is high on digital. Never has the country seen so much reliance on online processes.After the recent move of demonetization, the digital economy has received a serious adrenaline jolt. The upcoming budget is expected to be no exception. Promotional measures to boost the digital economy is expected. Credit/Debit card payments and mobile wallet transactions are expected to attract additional benefits. Payment banks are expected to receive relaxations and ease of operations.

4.Clarity on existing Government schemes and making them easy to avail-

The PM’s pet project “Startup India” had started with much enthusiasm and fervor. However, things did not turn out to be as rosy as they were expected to be. A negligible percentage of startups actually got registered during the year. The plan had also proposed a funding of Rs 500 crore for the next four years to all the new businesses under the program. Here again, only a few startups actually got an impetus from this. Lack of clarity of rules, considerable red-tapism and hiatus of initiatives are contributing factors for this. The Union Budget is expected to provide some required clarity on this.

Apart from these ,PM Modi’s earlier propositions like self-certification of documents,tax exemptions from startups, ease of compliances are some areas where relief is expected. Some relief/clarity is expected in the Corporate Law environment of the country as well. Today in most of the developed nations like US and Singapore, business registration takes a maximum of 48 hours. Whereas in India, it still takes a minimum of 2-3 working weeks. For forming a limited liability partnership (LLP) in India, a foreign national has to go through the tedious process of DIPP approval. Further, we are still struggling with the 60s mentality of hard copies and paper submissions. This really makes the Digital India push redundant.

5.More clarity in the FDI regime-

 

2016 has been the year of reforms. FDI norms were liberalized and most sectors were brought under the 100% automatic route. Fast-tracking of compliances were also given due attention. Forms like FC-GPR and Advanced Reporting (for receipt of foreign funds) were shifted completely to online media. Having said that, a lot still remains to be worked upon. A very important concern for any policy to actually work is its practical implementation.India’s FDI policy is no exception. For example, more clarity is required for FDI in e-commerce, especially in the B2C sector.Relaxation is also expected in the existing rule of ‘not more than 25% of the business coming from one vendor for marketplaces.

To summarize, a hassle free compliance structure which is in line with international practices, flexible taxation structure, digitalization are expected by startups.

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