The Government’s push for start-ups continues. Finance Minister Jaitley in his Budget speech has announced various schemes which can have a positive impact on the start-up ecosystem in India. Ease of doing business and low tax rates were some crucial points in his speech. Some of the major highlights of the budget are-

 

 

 1. Reduction of Corporate Tax rate for MSME-

The present corporate tax rate in the Country is 30%. However, understanding that for start-ups every penny saved is beneficial the FM has decided to reduce the same to 25% for small medium enterprise whose turnover is not more than 50 crores. However, the tax rate shall remain the same for the remaining industry at large.

 

  2. MAT Credit for 15 years-

MAT credit can be understood as the difference between the tax calculated under the general provisions of the Income Tax Act and that calculated under the MAT provisions of the Act. In other words, if the taxability under MAT is higher than taxability calculated under the general provision of Income Tax the extra amount so paid can be set off in the future years. At present MAT Credit is provided for 10 years.  However, Mr. Jaitley has proposed to increase it to 15 years.

 

  3. Reforms in Labour Laws-

One of the major hindrances for a startup in India is to comply with the various archaic Labours Laws. The Minister in his Budget speech has tried to address this. The Minister hinted at labour reform which is in consonance with the latest Economic Survey. To facilitate labour reform it prescribes making contribution to Provident Fund and Employees State Insurance optional. This would have several fold impact. Not only shall the start ups be able to save cost and undue headache of compliance to these labour laws but also the employees shall benefit as their take home shall also increase.

 

 4. Abolition of FIPB Board-

The FIPB shall stand abolished with effect from FY17-18. The Ministry in an endeavour to make FDI less cumbersome process has proposed to abolish the board.  Almost 90% of foreign investment shall be routed through Automatic route. More clarifications are awaited, however needless to say this process will help the start ups in garnering investments from foreign investors. 

 

  5. Low cost of credit-

Post demonetization banks have sufficient amount of deposits and the Minister has hinted that the government will facilitate an opportunity by which entrepreneurs can get credit at lower cost.  It is being highly anticipated that businesses falling under the criteria of Startup India can borrow from banks at a lower rate of interest.

 

 6. Tax holidays-

The Government has also announced tax holidays for start-ups. Entities incorporated post 31^st March 2016 and approved by Startup India can avail a three year tax holiday in the first seven years of the business instead of the first five years which were previously provided to them.

 

All in all, its a welcome move. However, much can be analysed only after going through the fine print of the Annexure in Finance Bill, 2017.

Watch this space for more analysis on Union Budget,2017 and its impact on Startups.