Budget 2022: Encouraging focus on start-ups

The Budget speech had two key references that are positive for start-ups. The first is the intention in addressing regulatory and other frictions when it comes to scaling up of investments by venture capitalists and private equity. For this purpose, the government plans to set up an expert committee to suggest appropriate measures.

The second aspect is extension of provisions under section 80-IAC. Currently the provisions provide temporary tax benefits for start-ups that meet certain conditions. One of the key provisions to claim this benefit was that the date of incorporation should be before April 1, 2022, which has now been extended by one year to March 31, 2023.

Easing regulatory hurdles

There were also other positives like intention to encourage involvement of start-ups in developing a suitable ecosystem to manufacture drones and encourage its use. Further, the government also intends to provide support to start-ups that are involved in defence R&D and sunsrise opportunity sectors such as artificial intelligence, geospatial systems, semiconductors, genomics and green energy.

Broadly, it does appear government is keen on easing regulatory hurdles. While the progress will be evolving, it is definitely headed in the right direction.

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Need to extend timing of tax benefits

The government must look to extend the benefits under section 80-IAC for much longer term or look to provide some other benefits in its absence.

A country like ours still has a long road ahead in terms of economic growth and ensuring its benefits reach all sections of the population. Yet, this process faces speed bumps due to inefficiencies from inadequate infrastructure and resource constraints. In such an environment, start-ups have a long term role to play in achieving our long term economic targets.

Successful start-ups address inefficiencies in economies, reduce costs and improve productivity. A smart and creative innovator tries to offer creative and cost effective solutions to pain points in economies. A good example is how digital payments and fintech addressed inefficiencies in achieving financial inclusion. As long as there are pain points and inefficiencies in economies, the case for startups is stronger. To that extent, their incorporation cannot be timed before a particular date to benefit from certain exemptions.

Bills Gates when he was the Microsoft Chief, once famously said what kept him awake at night was two guys in the garage thinking of the next big idea. There is a need to foster an environment that provides as much incentives as possible to the guys or girls in the garage solving a problem in our economy. Hence, the case for extending this benefit for the longer term is strong, and must be considered.