Budget 2020: Govt Looks To Offer Tax Incentives To Startups

In a bid to bolster the startup ecosystem in the country, the Indian government is now looking to bring additional tax incentives for startups with the upcoming budget.

According to ET, the government has received suggestions from the department for the promotion of industry and internal Trade (DPIIT) on how startups can be given further support in India.

These suggestions include providing tax incentives to incubators registered under the Atal Innovation Mission (AIM), goods and service tax (GST) advantages, employee stock ownership plans (ESOPs) tax benefits, among others. The forthcoming budget is expected to be presented by finance minister Nirmala Sitharaman in the Indian Parliament on February 1, 2020.

Further sources close to the matter told ET that currently, the GST fees charged to fund managers of alternative investment funds (AIF) in India stands at 18%. However, the reduction in GST charges will encourage foreign investors to invest more in Indian startups.

One of the biggest steps from the Indian government in tax norms has been the relaxation of the angel tax for the startups registered with DPIIT. Commerce minister Piyush Goyal has previously highlighted that 1658 startups have been exempted from angel tax until November 25, 2019.

Startup India Initiative

Since the inception of Startup India programme in 2019, the number of startups now registered with the government has grown threefold in the past year, reaching nearly 25K startups.

According to Invest India, the government’s investment promotion and facilitation agency, 24,935 startups are currently registered under this programme compared to March 2018 when the total was 8,939 startups.

For promoting this startup ecosystem, the government has also established an INR 10K Cr Funds of Funds (FoF). The FoF was originally established to be deployed by 2024-25, however, with the recent boom in the number of startups in the country, along with various tax initiatives, these funds are expected to be disbursed before the dedicated timeline.

Moreover, Goyal, recently in Lok Sabha, revealed that out of this 10K Cr corpus, the government has invested INR 2,669.83 Cr in 279 startups. The government has also highlighted that 10% of this total corpus has been reserved for women-led startups. Small Industries Development Bank of India (SIDBI) is managing the FoF.

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