Union Budget 2017: Tax benefits, liberal FDI to boost startup ecosystem

Bengaluru: Finance Minister Arun Jaitley has modified the tax concession policy for startups to allow the companies – incorporated post March 31, 2016 – to avail of a three-year tax holiday over a period of seven years of their existence. Additionally, the medium and small enterprises with an annual turnover of up to Rs 50 crore can benefit from a cut in the corporate tax from 30 percent to 25 percent.

“The extension of tax break for startups up to seven years was definitely needed as there are very few startups that actually generate profits in the first five years of their existence. Reduction in corporate tax rate for firms with a turnover of less than Rs 50 crore may not be of much use for new age startups that take 5-7 years and much larger turnover base to turn profitable,” said Mr Ajith Mohan Karimpana, CEO and founder, Furlenco.

The removal of Foreign Investment Promotion Board and liberalisation of foreign direct investment (FDI) will also benefit the country’s startup ecosystem, he said.

“This is an excellent move to remove lengthy and time consuming approval processes. We are waiting for further details on this,” said Mr Archit Gupta, founder and CEO of ClearTax.

“The government has signalled clear and loud that it is committed to liberalising the FDI policy to attract more investments. Once the FDI reforms are announced, they will not only attract fresh funds into the current startup ecosystem, but will also promote new ventures in many untapped or underserved sectors of the economy,” said Mr Sujayath Ali, CEO and Co-founder, Voonik.

However, to avail tax benefits, the startups have to meet the government’s definition of a startup and submit their applications to the Department of Industrial Policy and Promotion (DIPP).