2021 BUDGET EXPECTATIONS AND STARTUPS

Feb 12
18:31

2021

GSPU Startup

GSPU Startup

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The pandemic year has made startups undergo remarkable challenges. According to a NASSCOM report, the funds dried up and nearly 40% startups ceased to operate in May 2020. Now in the Union Budget 2021, startups are looking for relief and policy changes which will bring a hike in their working capital, retain top talent , and makes it easier for the inflow of rupee capital into this sector effortlessly.

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Now take a look at the budget expectations of India’s startup industry

 

  • ESOP Taxation : In the previous budget the government had reduced the tax burden on employees by holding off tax on employee stock ownership plan

 ( ESOP) by five years ,2021 BUDGET EXPECTATIONS AND STARTUPS Articles or when they choose to leave the company or while selling their stocks , it is approximated that just 400 startups have been cleared to reap benefits from this regulation so far. Now startups are requesting a broadening of range for tax exemptions and suggest that the government impart this benefit for all 40,000 startups registered with the Department for Promotion of Industry and Internal Trade.

 

  • IMB Certification removal : Startups seeking income tax exemptions under Section 56 / Angel Tax provisions require an evaluation from an Inter - Ministerial Board set up by the DPIIT but this has been taking a long time. Now startups and investors equally demand that the government remove the IMB clearance and grant the exemption to all startups that are registered with the DPIIT that submit the required undertaking.

 

  • Raising domestic capital participation: Now startups and the venture capital industry call for changes in regulations that currently prohibit or prevent large institutions like LIC and pension funds from investing in Alternative Investment Funds. In their opinion, this will cause a hike in domestic capital participation in India’s Startup industry, along with this it will also improve the persuasion of other local high net worth individuals and family offices to invest in startups.

 

  • New Investments with Tax free gains: Government is asked to exempt capital gains on new investments made by Alternative Investment Funds by the industry bodies that represent venture capital investors. In their opinion the loss to the state exchequer will be minimal as increased capital flowing into startups and MSMEs will increase the creation of jobs and assets.

 

  • Minimizing of “super-rich” surcharge : While the government had minimized the surcharge of 25% on income between Rs 3-5 crore and 37% for income above Rs 5 crore for the gains made through the sale of listed securities and for foreign investors , it hasn't been made applicable so far for gains made from sale of unlisted securities in startups. Now the investors demand the government to treat the listed and unlisted securities equally because it will influence the local investors to back startups rather than investing only in listed securities.

 

  • GST under reverse charge: Early stage startups that receive services from overseas providers pay 18% GST under the reverse charge mechanism, but since they have very less to no revenue they are unable to claim input tax credits. They are requesting an exemption from paying GST under reverse charge mechanism upto a certain revenue margin.