The measures to nurture startups announced in the Union Budget have drawn mixed reactions from the industry, particularly IT ventures. Some measures that have received positive reactions from the industry are: The proposal to reduce taxes for tech startups from 25 percent to 10 percent; revised bankruptcy laws; facilitation of business including e-filing of taxes; Self-Employment Talent Utilisation (SETU) to nurture technology start-ups and Public Procurement Dispute Resolution Bill to ease procurement challenges.
NASSCOM welcomed the Union Budget 2015 as “comprehensive” and appreciated the government’s focus on start-ups and technology.
NASSCOM president R Chandrashekhar said: “Our wishlist for Budget 2015 included three key priorities — [removal of] policy bottlenecks, including ease of business, [mitigating] procurement challenges and nurturing start-ups. [It] covers part of these priorities.”
Alok Ohrie, the president and managing director of Dell India, too, has expressed happiness at the “positive budget announced by the finance minister”. “[Some budget] statements the FM has made such as exemption of SAD, reduction of basic customs duty on electronics components and inputs have a bearing on our sector … However, we’ll need to review the notifications before any predictions could be made on the impact on the sector,” Ohrie said.
Startups such as Wegilant, an IIT Bombay incubated cloud-based mobile app security company with flagship product Appvigil, have stated that the budget had many positives. “Being a start-up, we comprehend the importance of any kind of support and when it comes from the government, we truly wish to deliver the best for the country and make a difference,” Toshendra Sharma, the founder and CEO of Wegilant said.
“The proposal to reduce taxes for tech startups from 25 percent to 10 percent is great news as this will really encourage tech startups in the country,” Alan D Souza, the CEO of Vavia Technologies, a Bengaluru-based text message-enabled start-up, said in a statement.
The industry, however, is also dissatisfied on other fronts. Vavia itself has questioned the announcement of Rs1,000 crore as startup fund.
“The government [has] spoken of another Rs1,000-crore start-up fund with no news about the previous Rs10,000-crore startup fund that was announced during the last budget. Rather than announcing such funds, more focus needs to be given on how utilization of such funds have impacted job creation and then additional support can be provided,” the company stated.
Other grouses the industry has with the budget include: Retention of Section 56 of Income Tax Act, that is, angel tax; dual levy of taxes on products; issues with service tax refund; retention of Minimum Alternate Tax, or MAT; and lack of clarity on transfer pricing. Also, the proposed increase service tax and net corporate tax rate, dual levies and high rate of TDS (10 percent) on software transactions even for start-ups, and the lack of incentives to develop startups in tier 2 and 3 cities remain issues.
Chandrashekhar said Nasscom will urge the government to address the issues on priority. “We await the details of the facilitative announcements for start-ups and hope to speedy implementation of the Rs 1,000 crore fund.”
Some of the other announcements made in the budget include: Threshold of applicability of domestic transfer pricing raised from Rs5 crore to Rs20 crore; online submission, including digitally signed invoices, of central excise and service tax registration and completion of the process in two working days; CENVAT credit period extended from six months to one year. The government expects the cut in income tax on royalty and fees for technical services to improve technology adoption at startups.
Notable quotes on budget recommendations concerning startups
“It is encouraging that the Union Budget had special focus on PM‘s Digital India initiative. JAM — Jan Dhan, Aadhaar, Mobile — and GST can be game changing reforms [for] financial inclusion and smoother, seamless transfer of subsidies to beneficiaries. The budget looks at not only creating new jobs, but also incentivising self employment and entrepreneurship.”
— Aloke Ghosh, CFO & CS, Blue Star Infotech
“We are delighted with the Union Budget which emphasises on … creating an entrepreneurial culture in the IT sector … If the definitions of royalty are aligned with international practices, the country’s software sector will be at par with the global norms and standards.”
–LC Singh, Vice Chairman & CEO, Nihilent
“Financial allocations for SETU and Rs150 crore for Atal Innovation Mission (AIM) would increase budgetary flow to incubators and seed funds for startups. These announcements are significant as availability of funds has been a major stumbling block for early stage startups. It will have a positive impact on fostering a culture of entrepreneurship. AIM will create world class innovation labs and accelerate job creation in the software sector.”
–Sanjay Vijayakumar, Chairman, Startup Village, Kochi
“Startup Village Angel Fund will now be open for global investors with the new changes announced with regard to SEBI-registered angel funds. The proposal to incentivise debit/credit card transactions would give a stimulus to the Internet and mobile app-based startups. The proposal to allow foreign investment in alternative investment funds (AIFs could aid growth of startups which often face hiccups in raising working capital.”
–Pranav Kumar Suresh, CEO, Startup Village, Kochi
“The start-up fund, a simpler regulatory environment, ease of doing business, provide the seeds and environment that can lead to a large number of successful companies. Job growth is inevitable in a fast growing economy. Small businesses make up 99.7 percent of US employer firms, 64 percent of net new private-sector jobs, and 49.2 percent of private-sector Employment. A lot of this has to do with the ease of doing business.”
–Shirish Deodhar, Co-founder & CEO, Sapience Analytics
“We have mixed reactions to the Union Budget. It is encouraging that the government has laid emphasis on job creators by promoting entrepreneurship. However, so far there were talks of Rs. 10,000 allocation for startups so we don’t have a clarity whether in this budget the allocation of Rs 1000 crores under Self Employment and Talent Utilization (SETU) for the startups is in addition to the same or it is Rs. 1000 crore only now. Although the corporate taxes have gone down by 5 percent, the increase in service tax and surcharge will have negative impact on the startup ecosystem. Due to the change in the permanent base treatment, this could be a boost in Fund Manager startup space.”
— Safir Adeni, President, The Indus Entrepreneurs, Hyderabad
“Budget has a positive thrust on Startup and Technology but concerns persist. For start-ups and SMEs, SETU is a big positive; AIM is another. Tax on royalty for technical services reduced from 25 percent to 10 percent will help reduce cost of technology and give more incentive for technology deployment … [But] increase in service tax rate by 1.5 percent is disappointing. Further, with mounting backlog in service tax refunds, the Industry will be impacted. Duality in service tax and sales tax applicability to product companies not addressed”
–BVR Mohan Reddy, Executive Chairman, Cyient Ltd, Vice-Chairman NASSCOM
“Government has shown its intent to create a business friendly environment and boost the ’Make in India’ initiative. The thought process of merging the Skill India initiative with Make in India is the right approach as skill development and manufacturing complement each other in the long run. From the industry perspective, reduction of the corporate tax from 30 percent to 25 percent is appreciated. GST implementation is another welcome move which will end taxation uncertainties in a lot of aspects … Reducing CVD on certain goods in another area the industry is looking forward to, however more clarity is needed in terms of its implementation. The budget, though, missed considering the challenges faced by the telecom industry.”
–Y Guru, Chairman & Managing Director, Celkon Mobiles
“It looks like a mixed budget from the IT Industry perspective. … The budget has given the right direction to the economy going forward, the 150 Cr corpus on making India world class IT hub will bring in a positive sentiment … It is good to see the government taking initiatives for startups, particularly the setting aside of Rs 1000 crores to set up Self Employment and Talent Utilization SETU supporting incubation and startups.
–Suman Reddy, Managing Director, Pegasystems India
“While there was nothing dramatic in the budget, it broadly seems to be a growth inducing one … [A] few measures seem [to be] in place to promote startups. While the details are unclear, the Rs150-crore world class IT hub will hopefully encourage development of new technology and products. The Rs1000-crore startup corpus, given the wording seems like will help setup and grow incubators and startup seeding. An interesting clause is ‘mechanism for self employment to help with startups – SETU’”
–Ramesh Loganathan, Vice-President and Managing Director Progress Software, President, Hyderabad Software Enterprises Association
“The budget was great in terms of showing the direction for accelerating economic growth … [T]he reduction of corporate tax and support to tech Start-ups with a mechanism for techno-financial incubation corpus of Rs1,000-crore has given tremendous boost to the IT sector and startup ecosystem.”
–-Debasis Chatterji, CEO, Netxcell Limited
“The Budget in totality looks positive with enhanced focus on fast-tracking growth in Healthcare, IT, Infrastructure and Education sectors … IT Industry has received a good uplift in terms of reduction in the corporate taxation from 30 percent to 25 percent and also reduction of taxes on royalty being reduced from 25 percent to 10 percent. Moreover a 150 Cr corpus has been announced to make India a World Class IT hub; which should attract further investments in the sector.
–Neeraj Jewalkar, Founder and CEO, Smartur.com