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The Tech Panda asked startups what their expectations are from the Union Budget 2022.
Last year, the Indian startup ecosystem welcomed the 2021 Union Budget for its tax relief, incorporation of One-Person Companies (OPCs), and funding. This year, after Prime Minister Narendra Modi’s declaration of January 16 as ‘National Startup Day’, startups’ hopes are up.
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Startups are asking for a focus on Make in India as a potential for generating jobs, building capacity, reducing the fiscal deficit, and building technological prowess.
The startup ecosystem witnessed good growth over the past year. Acceleration towards deep-tech involved Artificial Intelligence, Machine Learning, and data analytics, which is expected to grow steadily aiding in transforming core areas with speed and scale.
The Tech Panda asked startups what their expectations are from the Budget.
Lower compliance burden
Improve access to capital
Better Internet connectivity infrastructure
Mass data literacy programs to accelerate digitalization
“New-age companies leveraging data should be given a stimulus to enable India’s transformation into a data-driven economy that further helps the country to achieve its ambitious target of a US$1 trillion digital economy by 2025.”
“In Union Budget 2022, we expect the Government to provide provisions that will strengthen the startup ecosystem and encourage an entrepreneurial culture in the country. We also expect lowering of the compliance burden, improving access to capital, fostering better internet connectivity infrastructure, and facilitating mass data literacy programs to accelerate the digitalization of the nation.
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“With the advent of such huge data, which may include sensitive data as well, policies should be developed around data security and governance backed by incentives that encourage Indian investors to back home-grown advanced startups. Implementing these measures can reinforce India’s positioning as a global hub for AI empowering Indian companies, the outlook needs due diligence to promote local innovations under the ‘Make in India’ initiative”.
Simplify regulations to unlock land, labour, & capital use
Government support for non-tech companies to push Make in India agenda
Mortgage free loans to small entrepreneurs
“Simplification of regulations specially with respect to unlocking land, labour, and capital use will create an overall ‘encouraging’ environment for entrepreneurs to take risk and business to thrive given the large domestic opportunity.”
“To promote Make in India, the government should encourage more investment in the non-tech companies. Right now, capital is increasingly being deployed towards tech companies majorly FinTech. Government investments via e.g SIDBI serves the purpose of crowding capital into a sector which is already getting more than sufficient attention.”
“Indian entrepreneurs need this support to shift the materials supply chain from China and sell products not only via the internet economy but also offline for easy access to a large population residing in the hinterland of Bharat.”
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“Lastly, banks need to reduce formalities and provide small entrepreneurs with loans without a collateral. The CGTSME for instance can be increased from the current max INR1 crore to INR5 crore and make any MSME business eligible for it. An environment where small entrepreneurs can get loans without having to mortgage any personal asset will drive growth of new businesses as well as expansion of existing businesses and unlock the potential of our robust trading and manufacturing sector.”
“If we get just a couple of things right, then the momentum we can build in the next decade will be comparable to the ‘great leap forward’ of China in the 90’s and Indian economy will still grow at 5-7% in the coming decade. This can truly solidify India’s position in the global pecking order.”
Tax rebates, investment support, domestic capital participation, tax exemption in FDI & digital infrastructure development
“The startup ecosystem in India has shown exponential growth in the year gone to become the third largest in the world with huge investments, bumper IPOs and multiple unicorns taking shape. To further this momentum, the government should assist in setting up policies and measures to incentivise the startup segment through tax rebates, investment support, domestic capital participation, tax exemption in FDI and digital infrastructure development.”
Staff trade councils of Indian missions abroad with customer discovery experts
Register qualifying tech startups under one category in registrar of companies
First three year profits of registered companies to be exempt from income tax
Subsidy program to subsidize input costs for capable companies
Apprenticeship education for software professionals from class 12
“An ideal vision is to make India a trillion dollar software exporter (services, products, platforms) by 2035. Towards this, it is time that we tinker with few policy and policy execution ideas:
“Trade councils of Indian missions abroad to be staffed with customer discovery experts to identify opportunities and specific problems to solve in each country and present them back home. This can enable policy makers to also have an independent view of what is happening in the global markets.
“All qualifying tech startups can be registered under one category in registrar of companies. This goes a long way in improving the ease of doing business. Separate labour law code for registered companies with respect to payment of wages, payment of bonus etc would also be beneficial.
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“First three year profits of registered companies to be exempt from income tax to facilitate reinvestment into growth. While this is provisioned in the existing policy (for example under the Startup India scheme), the execution has significant room for improvement.
“Strategic subsidy program to subsidize input costs for companies with demonstrated capability to rapidly capture market share abroad in specific areas. We have seen success stories of this elsewhere. A case in point is China’s subsidy of input costs to solar companies over two decades resulted in monopoly of the solar market across the world.
“Apprenticeship education for software professionals from class 12. Government to invest in a separate university for the same along with appropriate university rules. Qualified players that can produce work ready students can be enrolled as colleges into the university. Urgent investment and policy change required here to address acute shortage of talent that can compromise India’s leadership position if it hasn’t already done so.”
Relief in no. of taxes to be filed, frequency of filing, or tax slabs for eligible startups under Startup India Scheme
“We expect that the ministry will finally give relief in goods and service taxes by reducing the slab rates for startups as well as the no. of filings per year. It takes a huge cost of operations for upcoming startups to keep a finance team or outsource the work for monthly taxation filings. I think Union Budget would announce some relief in either no. of taxes to be filed, frequency of filing or the tax slabs for eligible startups under Startup India Scheme.”
Redefine startup & ESOP taxation
“In order to make startups an equally lucrative opportunity for job seekers, we suggest the government revisit the definition of startups and ESOP taxation. It might be more relevant if ESOPs are taxed only during the time of sale. In addition to this, exception of SEZ from long-term capital gains would boost the stock market and encourage foreign investments inflow in the country.”
Friendlier capital gain tax system
“Our current tax system in a way penalises investing in unlisted companies for long term capital gain when an investor is actually taking higher risk, and eventually his investment is creating more jobs in the market. We need a more friendly capital gain tax system that also encourages easy access to capital. Additionally, the reforms should be such that Indian startups do not feel the need to incorporate outside India, which otherwise is a rising trend.”
Easier startup income tax exemption process
Ease ESOPs taxation
Establish Special Startup Region across Tier-2-3 India
“The startup income tax exemption which is available to startups is very complex and time-consuming. We understand the government must look for a simpler procedure. Additionally, ESOPs taxation is a hurdle for startups. In the early stages, startups cannot offer handsome salaries, therefore they provide ESOPs.
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“However, if at current valuation ESOPs have tax liability then even that cushion is not there anymore. Furthermore, Indian startups cannot raise funds through SAFE Notes which is the most acceptable instrument across the world. Lastly, I request the government, the way they have established SEZ Special Economic Zones or investment regions should form a Special Startup Region, SSR, which is spread across the country in Tier-II or Tier-III of India”
Fix capital gains taxation for unlisted equity
Provide ecosystem for credit & factoring facilities for SME manufacturers
“As a startup working for digitising a labour-intensive SME textile industry, we need to attract tech talent, investments, and promote India as a textile destination. Our biggest requests from the govt are to fix capital gains taxation for unlisted equity in line with listed equity for investors and provide an ecosystem for credit availability and factoring facilities for SME manufacturers.”
Consider tax structure on ESOPS
A centralised professional tax system
“In the current times, to build a successful startup one needs to have a strong team. However, retaining talent is not as easy when you are running a young business. In order to be able to attract and retain talent a lot of startups started offering ESOPs. We really would like the government to consider the tax structure on ESOPS, such that it be taxed only at the time of sales and not at the time of exercising, as the case currently is. Additionally, a centralised professional tax system on the lines of GST will further help and increase the ease of business for startups operating in multiple states.”
Liberal IPO policy
Ease angel tax & gift tax regulations
“India houses the third-largest cluster of startups in the world, which means nurturing them back to their feet can ensure an untold boost to employment rates, drawing maximum FDI channels to the country again and result in a quicker, more sustained recovery of the markets to their heydays.
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“Since 2020, an atmosphere of uncertainties and challenges has plagued startups. And while startups have stepped up their game even during the pandemic, they could do with a helping hand from the budget. Less cumbersome, liberal IPO policy guidelines, a revised compliance policy that’s easy especially for taxation purposes, and relaxation of tax obligations will lift a huge burden off our shoulders. Extending necessary exemptions to all companies that qualify as ‘startups’ such as the easing of angel tax and gift tax regulations will further incentivize Indian and overseas investors to engage with our sector—a heaven-sent opportunity for the industry.”
Reduce GST
Fund startups
Make public data accessible
“With the idea of creating a huge impact of “Make in India”, it is important to understand the role of startups too. The startups and their new ideas to contribute to the economy and localization need proper funding and budget too. Many of the economy-related issues would be solved with better startup conditions in the country. Not only would we be able to boost localization at its best, we would also be able to create jobs, more career opportunities, and customize the production according to the needs of our citizens.
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“There are some important factors that the government needs to keep in mind during the upcoming fiscal year budget discussion. Some of them are reducing the GST, giving more funding to the startups, and making the public data accessible for us. Startups should also get equity and interest-free loans in the growth stage so that they can help in contributing to the country’s economy.”
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