The Union Budget 2016 is expected to have a big focus on developing entrepreneurial ventures and supporting the existing micro, small and medium enterprises (MSMEs). The Government shares the industry’s view that this segment will drive the future economic growth in a big way and generate employment opportunities. Some of the key demands of the industry are around tax reforms, infrastructure and regulatory simplification.
Finance Minister Arun Jaitley has already indicated that the Budget will lay out concrete steps towards the implementing the recommendations of the Startup India Action Plan. The proposals include new e-governance platforms, simplified compliance, intellectual property rights support and easy exitprovisions, among others. The Government is due to set up a superfund of INR 10,000 crores to supplement the available venture funding for startups. On the tax front, capital gains will be exempt upon fulfillment on certain conditions. The investors will also enjoy exemption from capital gains arising from investments, if reinvested in a fund authorized by the Government. A 3-year income tax exemption for startups is also likely to come into force.
One of the big points of contention for new businesses is the “angel tax” applicable on individual investors (angels not a part of any fund) u/s 56(2)(viic). It applies on any share premium received by an unlisted venture, calculated on the basis of the difference between fair market value and actual funding. This seriously hampers early stage and pre-revenue startups that primarily depend upon angel funds and many of them are forced to register themselves out of India. The investor lobby has made a representation to the Finance Ministry for considering an exemption to small ticket investments of less than INR 10 crores. The much awaited GST implementation is expected to finally see the light of the day mainly because the Government has acknowledged the impediments the current complex tax environment poses and has shown commitment towards a unified regime.
Announcements are also likely in the areas of Digital India initiative, Make in India initiative and Smart cities project. These critical infrastructural enablers will prove instrumental in creating new business opportunities and expanding the existing ones.