In her Budget speech, Finance Minister Nirmala Sitharaman on Tuesday announced extension of tax incentives for startups by one year, in a bid to give boost to the country’s “growth drivers,” as she called them.
In 2017, the then Finance Minister Arun Jaitley, in his speech had announced that startups registered between April 2016 and March 2019, would get a 100% rebate on the profit they made for three years out of five years. Last year, Sitharaman extended the programme by one year.
“It is a welcome move by the government in continuing to recognize the value of startups to our economy and will be helpful for companies in later stages of their maturity,” said Ashish Kumar, General Partner, Fundamentum, which has backed unicorns like Spinny and Pharmeasy.
To be sure, the finance ministry has proposed extending tax incentives only for startups registered with the Inter-Ministerial Board. Other unregistered startups, to avail these benefits, need to get registered with the Inter-Ministerial Board, and most of these startups get rejected by the Inter-Ministerial Board, according to Siddarth Pai, Co-Founder, 3one4 Capital.
“In order to avail of Income Tax benefits, a startup must be certified as eligible by the IMB (Inter Ministerial Board). Out of 62,000 DPIIT registered startups in India, only 450 of them are IMB certified. The reform is this system was an oft-requested in order to broadbase the Income Tax benefits of being a startup,” said Pai.
Registered startups can expect tax incentives in a tax holiday and exemption from angel tax, Pai said.
Moreover, Kumar said that the extension may not just be enough. “The need of the hour is more in supporting the startups in their initial 5 years,” said Kumar.
Further, the finance minister also proposed capping surcharge on long term capital gains arising on transfer of any type of assets at 15%.
“This step will give a boost to the startup community and along with my proposal on extending tax benefits to manufacturing companies and startups re affirms our commitment to Atma Nirbhar Bharat,” Sitharaman said in her Budget speech.
The tax incentives announced in the Budget for startups come at a time when the country has emerged as the third-largest startup ecosystem in the world.
The Economic Survey 2021-22 released on Monday showed that India added record 14,000 new startups in 2021-22, taking the total number of registered startups in the country to over 61,400.
The survey also said India added a record number of 44 startups turning unicorns in 2021. Unicorns are companies with over $1 billion valuation. India also overtook the UK to emerge as the country with the third-highest number of unicorns after the US and China, which added 487 and 301 unicorns respectively.