Union Budget 2016: Here’s What The Startup Ecosystem Had To Say About This #VikasKaBudget

Last year, the Nehru jacket was dark blue and the briefcase, light brown. Au contraire, this year, Finance Minister Arun Jaitley wore a light blue Nehru jacket and carried a brown briefcase that was a tad darker than last year’s. All eyes were on our suave FM, as he stood up at the Lok Sabha today to announce the Union Budget 2016. His impeccable speech reflected his pride of coming up with this #VikasKaBudget.

Although, the whole country was anxiously awaiting the budget, the Indian startup ecosystem was particularly rife with anticipation surrounding this budget; especially after the buzz created by PM Narendra Modi at the ‘Startup India’ programme on January 16, this year. All the key stakeholders of the ecosystem were waiting with bated breath today, as the Finance Minister began his speech. At the end of his speech, some were jubilant, some content and some were downright dejected. Here’s what the key stakeholders of the ecosystem had to say about the Union Budget 2016.

Ravi Gururaj, Chair – Product Council & Member – Executive Council, NASSCOM and the founder & CEO of QikPod

In his January speech, Prime Minister Modi had set very high expectations among the startup ecosystem for high impact policy reforms to assist startups. The budget today articulated the implementation of a 3-year income tax holiday but with a MAT (Minimum Alternative Tax) imposed which will negate much of the positive impact of the exemption for nascent companies.

Sharad Sharma, Co-Founder & Governing Council member of iSPIRT

Startups in the country will certainly benefit from the budget announcement of amending the Companies Act to make the company registration process easier and swifter. Another positive announcement from the budget speech by Mr. Arun Jaitley has been the focus on Aadhar for subsidy delivery.

The Aadhar-powered India Stack, from authentication to execution, coupled with the open API (Application Program Interface) policy in India, can certainly transform the way in which digitally-focused companies can reach the masses quicker and more effectively.

Dr Ritesh Malik, creator at Innov8 Coworking and founder of Delhi-based Guerilla Ventures

A very balanced and rural-focused budget. A pivot strategy by the government to woo the village population in anticipation of the general assembly elections. Good news for startups, 3 years tax rebate on profits till 50 lakhs, but the irony is 8/10 startups don’t make profits in the first three years of operations.

Shailesh Vikram Singh, executive director, Seedfund Investment Advisory Company

Given the precarious condition of economy, we expected it to be a bold budget. However, the overall Budget was very disappointing with no focus on removing red tapism and multiple cess introduced which will increase further paperwork. It seems that Govt is not even aware that we are in the middle of a crisis. I will give it 3.5/10.

Sandeep Agrawal, founder & CEO, Droom

This budget is far from the reforms expected. In the startup ecosystem, entrepreneurs and emerging businesses were hoping for some exciting announcement to encourage entrepreneurism and innovations. However, the silver lining was the announcement for women and SC/ST entrepreneur with INR 500 Cr allotment. As an entrepreneur, I was hoping that govt will include following topics:

Capital for entrepreneurs should be more accessible and cheaper
Some tax benefits for start-up in terms of capital gain and dividend taxes
Offering R&D credits and lower costs for innovations
Listing rules should have been further streamlined for startups
Repatriation of capital (R&D credit from foreign countries) should be more accessible

Vijay Shekhar Sharma, founder and CEO, Paytm

I am really happy for Aadhar and India Stack. Finally, the government has provided legislative backing that will unleash the full potential of such an incredible platform. With the focus on digital payments and incentives to startups, the Finance Minister has boosted our Prime Minister’s Digital India and Startup India plans. Overall, the budget creates a strong foundation for sustainable growth in rural & urban India. Steps to further improve Ease Of Doing Business will drive entrepreneurship which is essential for job creation.

Ashwini Asokan, co-founder & CEO, Mad Street Den

Pretty encouraging overall!

The 3 announcements that seem most useful from the budget today IMO – the ability to register in one day, 100% deduction for the first 3 years, and tax break for patent research. We’ve particularly had problems with 1 and 3. 1 took away close to three months of our time, and 3 we’re feeling the pain of how much it costs to get this done.

Two things I wished they’d announced:

Incentive/relief of service tax for startups – this is a killer, in my opinion.
An attempt to overhaul what’s going with sending and receiving online payments – we can’t process/accept online payments of recurring/subscription revenue if we’re an Indian startup.

BVR Mohan Reddy, Chairman, NASSCOM

Our wish list for Budget 2016 included three key priorities – policy bottlenecks including ease of business; nurturing start-ups, products and ecommerce sector; and clarifications on transfer pricing to enable inward investments in India. Budget 2016 only partially covers these priorities. Extension of Section 10AA for SEZ units till 2020 is a positive outcome, though the imposition of MAT on startups will not allow the full impact of the benefits to be realised.

According to NASSCOM, these are the key proposals that were not addressed:

Removal of dual levies on software products
Domestic investors continue to face higher tax rates – Angel taxation, higher long term capital gains tax
Revision of criteria to carry forward losses to allow for capital infusion in business not considered
Transfer pricing issues related to safe harbor margins, APA (advance pricing agreements) roll-back rules not notified
Rationalisation of tax structure awaited. So far announced for new units in manufacturing set up on or after 1 March, 2016
No roadmap on MAT and different cess rationalisation
Research & Development credits not applicable for technology sector, lowering of deduction rate not conducive to encouraging tech R&D
Clarifications not provided on place of provision of service rules

Anand Lunia, founder, IndiaQuotient

Frankly, the Govt. has not done anything path breaking for mainstream startups. Ease of doing business steps are useful, but that’s not what the Budget is about.

As the crony capitalists are controlled and banks don’t want to lend to them anymore, India badly needs a new breed of entrepreneurs, the startup entrepreneurs. But do the startups have access to money at par with listed companies and the easy money lent by banks?

Simply put – new money in public markets attracts no tax after paying STT (Securities Transaction Tax), and after 1 year. However, new money in startups attracts 20% tax, and the period of long term has now been reduced to 2 years. If an angel exits before 2 years, its 30% tax!

Lots of confusion about taxing of employee stock options is also an issue; for unlisted startups there should be no taxation if employees get shares. Today many employees have the tax burden when shares are allotted to them.

The fundamental shift of capital from a handful of public companies to lots of startups will not happen unless there is a level playing field in terms of tax treatment for startup investing. Ideally startup investing should be incentivised more.

A change in long-term gains, from unlisted shares, from 3 to 2 years seems to be the only benefit. However, there have been some benefits for those who sell property to start a business. But, do we expect young founders to have property to sell?

Tax breaks are helpful, and I hope the startups take benefit of them. MAT still applies.

Samay Kohli, CEO, GreyOrange

We wholeheartedly welcome the Government of India’s reiterated focus on initiatives like ‘Digital India’, ‘Make in India’, and ‘Skill India’ through the Union Budget 2016. Looking at 6% plus GDP growth target in the coming year, manufacturing sector will play a very important role. The success of ‘Make in India’ will essentially depend upon increasing volumes and efficiencies in this sector, opening doors for technology innovations in the industrial automation and supply chain management space. Similarly, ‘Skill India’ will help the industry reach the next level of growth with the right skilled human resources.

We also welcome the Finance Minister’s proposal of the special patent regime with 10% tax on income from worldwide utilisation of patents developed and registered in India. This step will encourage technology innovation and development in the country. We urge the government to further simplify the process of obtaining patents. This will help in nurturing the culture of innovation in the country.

Ravi Kiran, angel investor and Co-founder, VentureNursery

While the one-day company registration, and SC-ST entrepreneurship are useful, they are not sufficient. Income Tax waiver for 3 years for startups, reduction of time frame for long term capital gains to 2 years, waiver of capital gains tax (if the gains are invested in Government approved Funds, and if the investment is made by an individual in a company majority owned by him), all look good as headline thoughts but aren’t meaningful in the real world.

Measures to give fillip to start-ups reflect inadequate understanding of the startup ecosystem by our policy makers.

The budget lacks any real attempt to increase the base of angel investors and corporate angels, and introduce incentives for people to take high risks and invest in disruption and innovation. But, as they say, the real work happens outside the speech. So I am hopeful.

Shashank ND, Founder & CEO, Practo

Taking a lead from Start-up India, Stand up India initiative, Mr. Modi’s government is constantly working towards creating a conducive environment to promote entrepreneurship and facilitate growth of the startup ecosystem in India. The ease of registration process and the hope to complete the task in 1 day is a welcome measure along with the 3 year tax holiday for startups. At least this will allow a speedy way to set up a venture and help startups to focus on building disruptive products and services without worrying about profits or losses.

It also good to see aspiring entrepreneurs to get access to quality education and training from various newly built colleges, schools, government ITI’s and vocation training centers, through massive open online courses.

Reduction of long term capital gains from 3 years to 2 years is a positive move by the government. With regards to the infrastructure improvement and focus on electrification of all villages will help to promote connectivity and give rural India access to the Internet.

Govind Rajan, Chief Operating Officer, FreeCharge

Fair Price Shops are lifeline of India, especially in tier-2 cities and beyond that. The Government’s proposal to automate 3 lakh Fair Price Shops is a great step towards the overall Digital India agenda. This will streamline the processes within these shops and will make it easier for consumers to make purchases.

With the recent announcement by Government around waiving off surcharge and convenience fee, this move will further open up the scope for automation of payments at Fair Price Shops by embracing new forms of digital payments like wallets.

We are also excited to see Government’s push towards research & innovation and 80% discount on filing patent applications by start-ups will further see new home-grown innovations coming from start-ups. This will not only bolster the ‘Startup India, StandUp India’ initiative but also create a great environment for tech innovation in the country.

Bhavin Turakhia, CEO and Co-founder, Directi

This budget signifies correcting and working towards some basic priorities in terms of providing more power and support to our internal growth engine. The government has shown a clear intent on revitalising agriculture, infrastructure, skill development and higher education sectors. This bodes well for creating a highly skilled labour force to drive the ‘Make in India’ mission in the country.

The deployment of Massive Open Online Courses to promote Entrepreneurship Education and Training will help Indian youth connect with mentors and credit markets. It is an encouraging move aimed at promoting entrepreneurial spirit, especially among youth from rural areas.

Amendments in the Companies Act and the ‘Stand up India’ scheme will boost the entrepreneurial ecosystem. Most importantly, the government has indeed offered unique opportunities to startups, categorising them as critical partners to the ‘Make in India’ programme. The proposed 100% tax deduction for new startups for the first 3 years, along with the speedy registration mechanism is quite noteworthy.”

Dinesh Goel, Co-founder & CEO, AasaanJobs.com

It is heartening to see that funds has been allotted in Budget 2016 to strengthen higher education through a non-profit organisation, and skill development through the Pradhan Mantri Kaushal Vikas Yojana. But the future plan involving the setting up of 1500 skill institutes should be done in tandem with the industry expectations of skills required in various job roles today. To scale up job creation in India, it is imperative that there is a constant realignment of skill expectations for jobs available in the market for all the stakeholders involved, job seekers as well as recruiters, with the changing nature of job descriptions today.

Sairee Chahal,Co-Founder, SHEROES.in

The budget from a founder’s point of view is very pro startups. Having freed startups from paying tax on their profits for three years out of the first five years of existence. Capital gains won’t have to be paid if the proceeds are invested in government-approved fund-of-funds or if an investor is a majority shareholder. This is bound to encourage angel investment and startup activity, thereby also creating more jobs.

From a startups point of view, profit tax exemption for first three years is a good step, though most startups don’t make money in the first three years.

Employment and employability are key areas for the government, where startups can pitch in with products and solutions. It is good that the government decided not to increase the Service Tax or Income tax rate and also allowed for HRA concessions. This will help businesses and their employees.

When Indian economy meets its targets, its startups and other stakeholders stand to gain from it. Overall a diverse budget, touching many aspects of the economy – not hard hitting but gentle and stable.

Shaifali Holani, Founder & CEO, EasyFix.in

The Budget booster dose under the Stand Up India scheme for women and Dalit entrepreneurs will specially be helpful for our sisters in rural India. More women will ‘stand up’ to recognise their inherent qualities of a successful leader. Added to this, is the mandate handed over to the banks to support up to two micro-enterprises each to SC/ST and women entrepreneurs. Apart from giving them a level-playing field across the socio-economic divide in the country, create economic independence, reinforce rights, this will make them more active in nation building.

It’s time for women to get over with their “self-doubt” and remember that a professional woman has to face distinct challenges but these aren’t show stoppers, merely speed breakers, that must be overcome.

Aloke Bajpai, CEO & Co-Founder, ixigo

The Union Budget 2016 has laid out big investments for the infrastructure sector which include allotment of funds for the development of roads and highways and an action plan to revive 160 non-functional airports. These steps come as a welcome move for the travel and tourism sector.

The current government’s focus on the Indian startup ecosystem is very positive and the union budget 2016 has reinforced support for entrepreneurship and start-up businesses in India.

Saurav Kumar, CEO & Co-founder, Cube26

It is encouraging to see the government’s continued focus to boost startups and entrepreneurs in India. The “Stand Up India Scheme” to promote entrepreneurship with a dedicated INR 500 Cr fund is a welcome move. The government’s initiative to amend the present Companies Act to enable registration of the companies in one day is commendable. The policies announced regarding ease of doing business provide a supportive ecosystem for the growth of startups.

While, the union budget 2016 has announced lowering of the corporate tax for new manufacturing units incorporated on or after March 1, 2016 at 25 per cent with a view to promote industrial activity and generate jobs, we were expecting a robust approach to incentivise Indian device manufacturers.

The special patent regime with 10% rate of tax on income from worldwide exploitation of patents developed and registered in India is a step in the right direction to boost innovation. We hope the patent process in India for indigenous companies become simpler as well to boost a culture of innovation and research. We believe “Skill India” has the potential to help startups grow to the next level with the right skilled human capital.

Overall, the Union Budget 2016 has focused on agriculture, rural and social sector in order to create macro stability. We were hoping for a more growth focused announcement.

On the whole, the Union Budget 2016 has received mixed reviews from the Indian startup ecosystem, but a major chunk of the stakeholders also believe that this is the right move in the right direction. Let’s wait and watch how these initiatives pan out at the ground level and how do they bring about ‘vikas’ in the ecosystem.