Expectation from Budget for Startups

Like every sub-group within the larger group of population, entrepreneurs also have great expectation from budget. The government has already agreed to the maxim that “Entrepreneurship is wealth creation as well as job creation.” Hence the great thrust to ‘Startup India Standup India’. In that context supporting entrepreneurs will ensure a force multiplier in nation building and reaching out to larger audience. There are broadly few areas that really need to be worked out by governments:
1. Cost of Debt
The biggest bottleneck that affects all firms in India is the high cost of debt. The going interest rates are in the rate of 13% with collateral and 16-18% without collateral. Large firms have access to lower rate of interest from borrowing in foreign currency. Startups, if at all get access to collateral free loans, get debt at very high price. Even when there are schemes like CGTMSE to give collateral-free loan, in practice, no banks want to give such a loan and these remain in paper. I have experience of at least 5 different banks not showing any interest in this scheme.
2. Level Playing Field
Smt. Nirmala has hinted at the need for startups to get better access to participation in government tenders where the number of years of experience become an hindrance for qualification. The hope is that the number of years are diluted as long as technology and expertise is met.
3. Tax

The Finance minister has already announced the reduction in corporate tax from 30% to 25%. A step towards that number would be good. For startups, it would be even better to have a lower rate or a longer window (currently three years) for waiver in income tax. Three years might be the time it takes before startups start making profits.

  • The 100% income tax exemption to ‘eligible’ startups for any 3 consecutive years out of its first 5 years is not increased to first 7 years.
  • Tax for smaller companies with turnover 50 crore will be reduced by 5 percent (25% from 30%)*
  • Carry forward of losses which previously needed 51% of shareholders to remain unchanged is now diluted. This is relief since the equity structure changes when funds are raised.
  • Although personal tax, entrepreneur and investor will have more money to invest in firms – A zero tax liability for those earning upto 3 lakh (from 2.5 lakh). Income tax limit from 2.5 lakh to 5 lakh reduced to 5 percent (from 10%)
4. Cost of Equity
For startups angel funding is only source to manage cash flow since debt from banks are next to impossible. The prevalence of angel tax makes this more expensive and some provision must be made to make it better.
5. Solar Ferry 

As a startup in manufacture of solar ferry boats the government must provide the same facility available to electric cars under FAME scheme and other tax exemptions. In fact solar ferry is even better than electric cars since energy needed for the car, although when it comes from grid, will eventually come from power stations that are more likely to be powered by coal or diesel. In case of solar ferry more than 75% of energy is from sun. Hence this deserve greater support if not same as electric cars and buses.

*In RED is announced in the Budget.

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