Union Budget 2022: Here’s what startups will get from the new Union Budget

Finance Minister Nirmala Sitharaman, on February 1, presented her fourth union budget. During the announcement, FM Sitharaman made several announcements for startups and small businesses in the country while stressing ‘Aatmanirbhar Bharat‘.

NABARD Fund for Agritech startups

FM Sitharaman announced that the government will facilitate a fund with blended capital raised under the co-investment model through NABARD to finance Indian agritech startups and rural enterprises relevant to farming.

The activities for these startups will include, inter alia, support for FPOs, machinery for farmers on a rental basis at farm level, and technology including IT-based support.

Facilitating Drone Shakti

During the budget announcement, FM Sitharaman said the Indian Startups will be promoted to facilitate ‘Drone Shakti’ through varied applications and for Drone-As-A-Service (DrAAS). In select ITIs, in all states, the required courses for skilling will be started.

Extended Startup Tax Holiday By Another Year

Over the past few years, the country has seen a manifold increase in successful startups. Eligible startups established before 31.3.2022 had been provided a tax incentive for three consecutive years out of ten years from incorporation. To incentivize startups, the government had last year extended the eligibility for claiming tax holidays for startups by a year to March 31, 2022.

In a view of the COVID pandemic, FM Sitharaman proposed to extend the period of incorporation of the eligible start-up by one more year, that is, up to March 31, 2020, for providing such tax incentive.

With this, Entrepreneurs or individuals who were planning to startup over the next 14 months will get to avail incentives that were so far available only to those startups incorporated on or before March 31, 2022.

Under this incentive, Eligible startups can claim a 100% tax rebate on profits they make for three years out of the ten years since its inception, but provided that their annual turnover is not over Rs 25 crore in any financial year.

“The relaxation in start-up tax holiday with new start-ups formed before 31 March 2023 will help in the setup of new ventures. While start-ups were keen on additional measures in the form of clarity on overseas listing, tax exemption for swap of shares, relaxation in ESOP taxation, given the renewed focus on start-ups, one could hope that these reforms are also around the corner,” said K.T. Chandy, Partner and Leader- Private Tax, EY India.

AtmaNirbharta in Defence

FM Sitharaman in her fourth budget announcement said the Defence R&D will be opened up for industry, startups, and academia with 25% of defence R&D budget earmarked. 68% of the capital procurement budget will be earmarked for the domestic industry in 2022-23, up from 58% in 2021-22.

She also said the Private players will be encouraged to take up the design and development of military platforms and equipment in collaboration with DRDO and other organizations through the SPV model. An independent nodal umbrella body will be set up for meeting wide-ranging testing and certification requirements, she adds.

Venture Capital and Private Equity Investment

According to FM Sitharaman, Venture Capital and Private Equity firms invested more than Rs 5.5 lakh crore last year facilitating one of the largest start-up and growth ecosystems. “Scaling up this investment requires a holistic examination of regulatory and other frictions. An expert committee will be set up to examine and suggest appropriate measures,” she said.

Incentives for Manufacturing entites under Concessional Tax Regime

In an effort to establish a globally competitive business environment for certain domestic companies, a concessional tax regime of 15% tax was introduced by our government for newly incorporated domestic manufacturing companies.

Now, the FM Sitharaman in her budget extended the last date of commencement of manufacturing or production under section 226BAB by another year i.e from 31st March 2023 to 31st March 2024.

Rationalisation of Surcharge (Reducing Tax Burden For Startups & Investors)

Finance Minister Nirmala Sitharaman has proposed to cap the surcharge of AOPs at 15%. Further, the long-term capital gains on listed equity shares, units, etc. are liable to a maximum surcharge of 15%, while the other long-term capital gains are subjected to a graded surcharge which goes up to 37%.

“I propose to cap the surcharge on long-term capital gains (LTCG) arising on transfer of any type of assets at 15%,” she said. “This step will give a boost to the Indian startup community and along with my 25 proposals on extending tax benefits to manufacturing companies and startups reaffirms our commitment to Atma Nirbhar Bharat,” she adds.

Image Courtesy: 3one4 Capital

This proposal effectively brings down the effective tax rate to 23.92% from the earlier level of 28.50%.

Gopal Srinivasan Chairman, TVS Capital Funds, said, “Most of the domestic money for the AIF Industry in India still comes from the large family offices where the rate of surcharge was at 37 percent, and that now stands reduced to 15 percent, the same as that of public markets. The will enhance the supply of investments into start-ups and the AIF industry.”

What Does Economic Survey says about Startups

In the last year, Emerging startups raised a record $42 billion in funding through global and domestic funds. Moreover, the number of unicorn startups also doubled from the year 2020.

According to the Economic Survey 2021-22, The last year for the Indian startup ecosystem has been an exceptional year for the primary markets with a boom in fundraising through IPOs by many new-age companies/tech startups/unicorns. About Rs 89,066 crore were raised via 75 IPO issues in April-November 2021, much higher than in any year in the last decade.

The Survey also stated that India now has more than 61,400 startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT). And at least 14,000 recognized startups were added in 2021-22 fiscal, it said.

The country’s capital Delhi has become the startup capital of India, surpassing Bengaluru in terms of the startups added since April 2019, according to the Economic Survey 2022. Between April 2019 and December 2021, Delhi added around 5,000 startups while Bengaluru maintained to add 4,514 startups.

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