Budget 2023: Measures for start-ups
India ranks amongst the largest start-up ecosystem in the world. The number of recognised start-ups has gone up from a few hundreds in 2016, to around 90,000 in 2023, on account of the government supporting the start-up eco-system with various targeted initiatives. About 48% of start-ups belong to Tier-II and Tier-III cities.
Ahead of the Union Budget 2023, entrepreneurs and investors had called upon the government to provide measures to boost the growth and global competitiveness of Indian start-ups. The Economic Survey 2022-23 refers to start-ups as messengers of India’s entrepreneurial dynamism. It acknowledges that due to commercial, regulatory, tax and other factors, Indian start-ups have been ‘flipping’ their structures to overseas countries with conducive regulations. The Survey also recognises the need for ‘reverse flipping’ by, inter alia, simplifying the process of IMB Certification for start-ups, simplification of taxation of ESOP and multiple layers of tax, removing uncertainty due to tax litigation, simplifying procedures for capital flow etc.
The Economic Survey having acknowledged the fact that Indian start-ups are facing several inherent challenges, the government has continued the support to the start-ups ecosystem by providing several policy initiatives and tax proposals in the Budget.
The key policy proposals in the Budget include setting up of an Agriculture Accelerator Fund to encourage agri-startups by young entrepreneurs in rural areas. The Fund will aim at bringing innovative and affordable solutions for challenges faced by farmers. It is also proposed to build Digital Public Infrastructure for Agriculture which will enable farmer-centric solutions through relevant information services and support for growth of agri-tech industry and start-ups. Key budgetary allocations for specific start-up initiatives include allocation towards Fund of Funds of Rs 1,470 crore, Start-up India Seed Fund Scheme of Rs 160 crore, Credit Guarantee Fund of Rs 250 crore and Start-up India programme of Rs 30 crore.
The Budget also proposes couple of tax incentives for start-ups. To promote the development of start-ups and to provide them with a competitive platform in India, the period of incorporation of the eligible start-up has been extended to 31 March 2024, which will allow for a deduction of 100% of the profit and gains of such eligible start-ups for three consecutive years out of ten years. Further, the condition of continuity of at least 51% shareholding for setting off of carried forward losses, is relaxed for an eligible start-up, if all shareholders of the company continue to hold those shares. At present this relaxation applies for losses incurred during the period of 7 years from incorporation of such start-up. It is proposed to now increase this period to 10 years.
While there are several measures in the Budget proposals to incentivise start-ups, the start-up community would perhaps have appreciated certain additional relief such as broad basing of tax holiday to all start-ups, incentivising R&D, simplification of taxation of Employee Stock Options and targeted provisions for encouraging reverse flipping, increased allocation towards Credit Guarantee Fund etc.
The potential of Indian start-ups to contribute to the structural transformation of the economy and to drive inclusive, sustained and equitable economic growth and employment, cannot be stressed enough. The Finance Minister has rightly stated that entrepreneurship is vital for a country’s economic development. It is therefore encouraging that the government has continued its support towards the start-up ecosystem.