What startups want from budget

Business Standard What startups want from Budget

The success of these startups largely depends on government policies, rules and regulations. With budget 2018 just around the corner, there is a lot on every startup's wish list.

The Indian economy is amongst the world’s fastest-growing economies. This along with government’s continued efforts to improve the ease of business has led to a start-up revolution in India. The year 2017 witnessed funding of $13.7 billion across 820 deals in startups! However, the Indian startup ecosystem still lags behind its peers in Silicon Valley and Israel.

The success of these startups largely depends on government policies, rules and regulations. With budget 2018 just around the corner, there is a lot on every startup’s wish list.

Access to Easy Credit The government had earlier set up a fund of Rs. 10,000 crore to provide financial assistance to startups. The government had also formulated a credit guarantee fund with a corpus of Rs. 2000 crore to enable startups to raise collateral free loans up to Rs. 500 lakh per case. But these funds aren’t sufficient.

At the ground level, securing credit is still not very easy for fresh startups. There is a requirement of the project plan and extensive documentation along with guarantees and sometimes collateral too. Budget 2018 can remedy this situation by: Expediting the establishment of credit guarantee fund.

Establishing banks that specifically cater to disbursal of loans and financial management of startups.

The government can also authorize some nationalized and few private banks to add verticals that exclusively service requirements of startups.

Increase in Tax holiday The firms incorporated after 31st March 2016 can avail a three-year tax holiday in the first seven years of their existence. The issue is that the period of three years is quite less considering a new business takes about five years to settle down and churn profits. Increase in this tax holiday period to 5 years can help budding startups to fortify their business and market position without worrying about the taxes.

Tax on ESOPs The cash crunch is an everyday reality for most startups. Many startups tend to compensate their high-value employees through ESOPs. The ESOPs are taxed in the hands of an employee at the Fair Market Value. Since the funding is mostly external, the fair market value tends to be very high and the correction comes in much later when the venture is steady. This is why a tax on ESOPs of a startup must be deferred to the date of actual realization or the financial year when startup ceases to be a startup under the definition. This will help new ventures attract and retain the right talent........read more