If there was one community that was enthused by Arun Jaitley’s third budget it was the entrepreneurial one. The general reaction was that this was a very “pro start-ups” budget in a multi-dimensional way – be it the focus on ease of doing business, the taxation benefits, the thrust on Make in India to enabling skill development and addressing the talent issue. However, there were some disappointed noises that no clear picture on GST was shared and that service tax had been increased.
On the specifics, these were the key takeaways for start ups:
Amendment in Companies Act to improve enabling environment for start-ups – registration of company in one day for start ups.
Lowering of corporate tax rate for small enterprises i.e companies with turnover not exceeding Rs 5 crore to 29 per cent plus surcharge and cess.
100% tax exemption for first 3 years for startups setup during April, 2016 to March, 2019. However, MAT will apply in such cases.
10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
Complete pass through of income-tax to securitization trusts including trusts of ARCs. Securitisation trusts required to deduct tax at source.
Period for getting benefit of long term capital gain regime in case of unlisted companies to be reduced from three to two years.
New manufacturing companies incorporated on or after 1-3-2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
Rs 500 crore allocated for scheduled caste, scheduled tribes and women entrepreneurs under the Stand up India scheme. 2.5 lakh entrepreneurs expected to be benefited by the scheme
National hub in the Ministry of Micro Small and Medium Enterprises (MSME) to provide support to SC/ST entrepreneurs.
GoI to pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment.
Analysing the fine print however, bodies like Nasscom felt that while the tax holiday of three years was great, continuing with MAT (minimum alternate tax) imposition was a dampener. Both Nasscom and Indian Angel Network also expressed disappointment that long term capital gains tax for unlisted companies was not aligned with that prevailing for listed companies. “Holding period for investment in unlisted companies to qualify for long terms capital gains tax reduced from 3 to 2 years. Our recommendation was for 1 year in line with investments in listed shares, said Nasscom President R. Chandrashekhar.
But some of the measures to give a boost to Make in India would benefit manufacturing start ups felt Aamir Jariwala, Secretary of Ecommerce Coalition, "Announcements like 100 per cent FDI for the food processing industry are optimistic signs for the Ecommerce industry,” he said. “The reduction and removal of corporate tax variously on new manufacturing units, small units and new companies will make positive impact on MSMEs and suppliers to Ecommerce platforms,” he added.
Apart from the direct benefits, many felt that proposals like skilling one crore youth would address the talent issue for start ups.