Consider the 100% tax exemption for three years, except minimum alternative tax (MAT), which will apply for start-ups set up between April 2016 and 2019.
It's now fashionable to talk about start-ups at every given opportunity, the Union Budget being a good enough occasion for the government.
But finance minister Arun Jaitley wasn't quite equipped to match Prime Minister Narendra Modi's grandiose announcements that came about during the Start-up India jamboree.
And the little that came for the sector was mostly a rehash or was not quite exciting enough for this turbo-charged sector.
Consider the 100% tax exemption for three years, except minimum alternative tax (MAT), which will apply for start-ups set up between April 2016 and 2019.
"The tax holiday is a positive step. However, this may not translate into practical benefits as start-ups rarely make a profit in the first three to five years, which is why they need investors such as us to support their businesses," said Vikram Gupta, founder and managing partner, IvyCap Ventures.
Not exempting start-ups from MAT is another sore point, said Mohan Reddy, chairman, Nasscom.
Jaitley also exempted start-ups from capital gains tax if invested in regulated and notified fund-of-funds and by individuals in notified start-ups in which they hold majority shares.
But more clarity is needed, feels Gupta, as it impacts exit options.
"I still expect more clarity around the announcement of setting up more fund-of-funds. While it may prove to be a great pooling vehicle for me in the future, I see a challenge in the short term for venture capitalists, as the timeline around when these fund-of-funds would be set up is unknown, thereby increasing our gestation period," Gupta said.
Raising the turnover ceiling for the presumptive taxation scheme from Rs1 crore to Rs2 crore, targeted at the MSMSE sector and under which 33 lakh units are currently registered, would also benefit start-ups, though the sector has been demanding that this be hiked to Rs3 crore.
The benefits for the start-up sector can also flow in from steps like the government proposing to pay the Employee Pension Scheme contribution of 8.33% for all new employees — with a salary of up to Rs15,000 per month — enrolling in EPFO for the first three years of their employment.
"This would take the burden off a number of start-ups that employ a significant number of skilled hands in services such as product or service delivery," said Shiv Siddhant Kaul, managing director, Nicco Engineering Services.
The finance minister also talked about amendments in the Companies Act, 2013 in the Budget Session to improve the environment for start-ups, including facilitating the registration of companies in a day's time.
The proposal, however, is a repeat of what the prime minister announced in January at the Start-up India event.
"The budget definitely sounds like a great follow-up to the promises made during Make in India. It will be interesting to see how efficiently the Start Up India funds are utilised — this is definitely something all start-ups and investors will be watching out for," said the chief operating officer of CouponDunia, Ankita Tandon.
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