Budget 2020: Start-ups & MSMEs hail Sitharaman

We spoke to industry players on some of the key announcements made in the Union Budget with respect to promoting start-ups

e4m by Shreshtha Verma
Updated: Feb 4, 2020 8:33 AM

Finance Minister Nirmala Sitharaman in her Union Budget speech said start-ups have emerged as growth engines of the Indian economy.

Budget 2020 had a slew of announcements supporting and promoting start-ups.

According to Budget 2020, start-ups with a turnover of up to Rs 100 crore can now claim 100 per cent deduction on their profit for computing tax liability for three consecutive years out of 10 years since its incorporation.

This, experts say, is a liberating move by the Union government.

The finance minister has said that knowledge translation clusters will be set up in new and emerging areas. A digital platform will be encouraged to emphasise on innovation. She has also proposed providing initial funding, including seed funds, to promote the emergence and development of the first phase of start-ups.

The Budget announcements, industry players say, will prove to be a game-changer for start-ups and MSMEs.

Here’s a look at the key announcements with respect to start-ups.

No audit if MSME turnover is less than Rs 5 crore:

In the micro, small and medium enterprises (MSME) sector, it has been proposed to increase the turnover limit 5 times to Rs 5 crore for auditing them, giving great relief to small retailers, traders and shopkeepers. Currently, the limit is Rs 1 crore.

To encourage a low-cash economy, this increased limit will apply only to those enterprises whose share of cash transactions in the business is less than 5 per cent. At present, enterprises whose turnover is more than Rs 1 crore have to get their account books audited by an accounting officer.

Additionally, eligible start-ups with a total turnover of Rs 25 crore are allowed to deduct 100 per cent of their profits for three consecutive assessment years out of seven, if the total turnover does not exceed Rs 25 crore. To give this benefit to big start-ups, the budget has proposed to increase the total business limit from the current Rs 25 crore to Rs 100 crore.

These measures have been welcomed by start-ups and entrepreneurs alike.

According to Ankit Prasad, Founder and CEO, Bobble AI, the best thing about Budget 2020 is that the government has kept Start-ups in mind with announcements related to income tax deduction, and deferred taxation on ESOPs among others.

However, Prasad says it is now to be seen how these will be executed. “We, as an industry, are jaded by the past - there have been issues when it comes to implementation and it has been at the receiving end of the IT Department, courtesy misinformation of Angel Tax,” said Prasad.

He hopes that this year will be different and that there will be no friction whilst implementing and executing the proposed policies.

Ramesh Kaushik, VP Brand Experience at Blackberrys, has also applauded FM Sitharaman for this well-thought budget for start-ups.

“The government remains committed to accelerating consumption in Budget 2020,” he said.

Kaushik thinks the measures of reducing corporate tax and initiatives to boost the MSME sector will help accelerate industrial and corporate growth in the country.

According to Kunal Lakhara, VP of Finance and Operations, Pocket Aces, Budget 2020's revised fiscal deficit target of 3.8% of the GDP seems more realistic and focus on spends or benefits was required to boost the economy. He says the thrust on entrepreneurship and tax regulations for both, start-ups and taxpayers, is a move in the right direction.

India is the third-largest start-up hub globally and the announcement of an investment clearance cell to provide end-to-end support to start-up founders will encourage more youth to turn job creators.

“The ability to defer taxes on ESOPs will democratise wealth creation for start-up employees, ensuring the right talent is benefitted,” he elucidated.

Finally, the decision to grant 100% tax exemptions to sovereign wealth funds on their investment in priority sectors will provide the much-needed funding boost to the sector and create value in the longer run, added Lakhara.

According to Silky Singh, CEO & CTO, Ripsey, a start-up in the health sector, the Union Budget is going to be a game-changer. “We are very happy that the government is encouraging early-stage startups by setting up a seed fund. We believe that data is the new oil and is elated to see the government focus on it,” said Singh.

It now remains to be seen how the announcements take shape and benefit the start-up scene in the coming months.

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