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How Budget 2018 will Change Indian Startup Ecosystem

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Last year Indian startups took a real beating with the rollout of the goods and services tax (GST) and demonetization. This is the reason startups were looking forward to this year financial budget. However this year The Union Finance Minister Arun Jaitley made a series of proposals in his Budget for 2018-19 to appease the startup community of India.

Union budget 2018

Here are some of the funds allocated to the startups by the government in 2018 Union Budget.

  • $43.8 Mn (INR 281 Cr) has been allotted to the scheme of Investment Promotion Startup India.
  • $31 Mn (INR 200 Cr) will be injected to Atal Innovation Mission
  • $112.25 Mn (INR 720 Cr) has been kept for innovation, technology development, and deployment
  • $13.7 Mn (INR 87.86 Cr) has been kept for the development of an entrepreneurship scheme

The main objective of these fund allocation was to enable India to stand among the top 10 most preferred FDI destinations in the world and to improve the ease of doing the business ranking. Currently, India stands at 100th position in ease of doing business.

The next aim of the scheme is to facilitate and support 1,000 startups by connecting these 1000 startups and 100K entrepreneurs on a single platform i.e. Startup India Hub.

What is Atal Innovation Mission

The Finance minister has also allotted $31 Mn (INR 200 Cr) to the Atal Innovation Mission. The objective of the mission is to set up 600 new Atal Tinkering Labs (ATLs) in 1,500 schools

The government is also Over $112.25 Mn (INR 720 Cr) on innovation, technology development and deployment which will be used in helping 70 technology business incubators (TBIs) and other startup related activities.

Jaitley said in his budget speech “Venture capital funds and angel investors need an innovative and special developmental and regulatory regime for their growth” while mentioning the government’s initiatives such as the Start-Up India programme.

However, many startups are not happy with the Union budget 2018 at it fails to address some of their fundamental concerns as mentioned below.

#1 Tax Exemptions

The government announced exemption on income tax (on their profits) and capital gains tax for the first three years from the year of incorporation last year. But there are very few startups are able to use this benefit because they don’t break even during this period, and thus have no tax liability.

#2 The Angel Tax

In 2016 government removed the tax on capital raised by start-ups from domestic angel investors, However, only those startups that fulfill certain criteria set by the government remain exempt, as per the many top startups of India there is a lack of clarity on the requirements for this certification from the government.

Mohandas Pai the chairman of Aarin capital tweeted that “Startups are getting harassed by Income Tax Department for raising capital, and they are threatening to consider it as income! Very bad scene and many are angry and upset,”

#3 GST related Concerns 

A fundamental issue many had with the implementation of the goods and services tax is the lack of clarity in its rollout. The common concern of many entrepreneurs is the amount of paperwork they need to file and confusing regulatory mechanism. The Union Budget of 2018 failed to assuage these concerns, besides not offering any sort of tax holiday.

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Last Updated on January 29, 2022 by Whizsky