India, which has a vibrant start-up ecosystem, has huge expectations from the Union budget. Apart from tax reforms, the stakeholders in the start-up ecosystem expect the Centre to come out with government-backed seed funds and incubators to help the growing start-up sector.
Stakeholders in the start-up ecosystem want the government to introduce more tax incentives for private investors so that investing in start-ups becomes easier. They also expect the government to stress supporting innovations so that the ecosystem grows further.
“Start-ups can be offered with policies that can reduce input costs, enhance liquidity, and stimulate financial enclosure for certain sub-sectors. The budget can infuse certain assistance to save time and financial savings in forming a business. For instance, registering for GST, obtaining MSME certifications, number of tax filing, tax slabs, etc. for firms qualifying under Start-up India Scheme can be done through a single window clearance system. A separate tax and regulatory framework can be created for Private Equity and Venture capitals and start-ups,” remarked Ramesh Nair, chief executive officer, India and managing director, Market Development -Asia, Colliers.
Many experts representing the investor and VC community feel that India has created a thriving start-up ecosystem with the help of supportive policies, investor interest, and a passion for innovation, and in order to continue this momentum, there are expectations that Union budget 2023 will empower innovation by increasing the efforts in the development of India’s digital infrastructure. “Improving the ease and timelines for receiving grants from government-sponsored programmes like BIRAC, Atal Innovation Fund can help start-ups tremendously in innovating and solving real-world problems. There is an expectation to introduce deferment of the time of payment of tax on ESOP plans available to employees of more start-ups. This would be a fantastic effort to draw top talent to Indian start-ups and ensure their continued growth in the years to come,” observed Manu Rikhye, Partner, Merak Ventures.
Many stakeholders in the start-up ecosystem feel that there is always a challenge in gaining access to funds and investment and the budget could continue supporting government-backed seed funds and incubators.
“Introduce tax incentives for private investors to support start-ups as the current tax laws are archaic and are causing an outflow of capital from the country. At the same time, there could be measures to simplify and streamline the process of setting up and running a business in India, as well as reducing red tape and bureaucracy. Taxation is also an important consideration for start-up founders, particularly in terms of the rudimentary taxes on employee stock options and angel investments. In addition to these financial concerns, many start-up founders are also looking for measures to support the growth and development of the Indian start-up ecosystem as a whole, such as support for networking and mentoring programmes, and initiatives to promote innovation and entrepreneurship,” pointed out Karan Baweja, founder and CEO, Upsurge.
Other VC representatives are hopeful that the budget will fuel the start-up landscape, providing crucial encouragement through tax reforms, funding access expansion and other initiatives. “We hope with the government's continued support, this budget brings tax respite by eliminating the Tax Deducted at Source (TDS) for start-ups and enabling Goods and Services Tax credits (GST). GST should be eliminated for procuring services from priority start-ups. The government should introduce impact-based and Intellectual Property (IP)-based incentives and resolve long-standing problems with ESOP taxation. By categorising start-ups on priorities like innovation, global opportunity, and national importance, such as path-breaking technology and defence, we can increase GDP expectations by four times in 10 years by setting up a separate ministry with a tax regime for start-ups, encouraging ethical reporting and corporate governance,” said Suresh Narasimha, managing partner, CoCreate Ventures.
He pointed out that there should be attempts to attract and incentivise investors, capital gains tax rules for equity in start-ups and AIF investments should be standardised to public markets. “Simplified pooled investment structures intended for seed and early-stage investments, offering tax deductions or exemptions for "priority investments" should be included. Similarly, there should be attempts to put Edtech purchases under a tax savings scheme. Users should be able to claim tax redemptions and eliminate GST for procuring services from 'Priority start-ups'. Revenue generation beyond India should also be promoted with special incentives for business development activities, foreign subsidiaries, trade registrations, certifications and audits,” said Narasimha.