Is it a good start for start ups?

PRABHU GOVINDANMANAGING PARTNERKPSN CONSULTING LLP

The much awaited Union Budget 2016 has finally been unveiled
by the Honble finance minister (FM),expatiating on a series
of policy initiatives and schemes that aim at encouraging
startups and existing Micro, Small and Medium Scale
Enterprises (MSME). They key objective of such schemes
were to eliminate the common challenges startups come
across, and ensure that MSMEs in the country get a fillip.
The union budget has several proposals and schemes to boost
the governments Make in India and Start-up India
campaign. Some of the key proposals/schemes are highlighted
below:
Tax deduction @ 100% of Profits for the 3 of first 5 years
of Profits
Any start-upeligible under the Start-up India scheme
established between April 1, 2016 and March 31, 2019, will be
eligible for100% tax deduction for any 3 out of first five years of
their establishment. However, MAT (Minimum Alternate Tax)
would be applicable.To be eligible as a Start-up under the
above scheme, the business should involve innovation
development, deployment or commercialisation of new
products, processes or services driven by technology or
intellectual property. Further, the Start-up should have equity
funding of at least 20% by incubation, angel or private equity
fund, an accelerator or angel network registered with SEBI
endorsing the innovative nature of the business.
In the past, tax holidays of similar nature provided to Software
Technology Parks of India (STPIs), Special Economic Zones
(SEZs) etc. have contributed to increased employment,
productivity and growth of GDP. This proposalshould incentivise
the start-ups for sure.
Exemption of LTCG on investment into eligible start-up

Investment of proceeds from sale of residential property by an

Individual of HUF in the shares of eligible start-up are exempt
from long term capital gains provided such individual or HUF
holds more than fifty percent shares of the Company and such
Company utilises the amount invested in shares to purchase
new asset before due date of filing of return by the individual or
HUF.
This proposal would assist in mobilising seed capital or Initial
funding process of the start-up company and would be a
positive sign for investor as well.
Reduction in Corporate Tax
New manufacturing companies incorporated on or after March
1, 2016 have been provided an option to adopt a reduced
corporate tax of 25% plus surcharge and cess. In absolute
terms, 27.55% (where the income exceeds Rs 1 crore but does
not exceed Rs 10 crore) or 28.84% (where income exceeds Rs
10 crore) provided such companies do not claim profit-linked or
investment-linked deduction or do not avail of investment
allowance and accelerated depreciation.
This change is envisioned to provide the much needed boost to
the manufacturing sector and the 'Make in India' campaign of
the government, considering the capital-incentive nature of the
manufacturing industries. However, the benefit of reduced rate
may be of little help in the initial years. Thus, the companies
may prefer to claim deductions and incentives which may result
in reduced effective tax rate rather than opting for lower rate of
tax.
Extension of tax holiday benefit for SEZs commencing
activity before Mar 31, 2020
The benefit of section 10AA to new SEZ units will be available
to those units which commence activity before 31.3.2020.The
SEZs enjoy 100% income tax exemption on export income for
the first five years, 50% for the next five years thereafter and
50% of the ploughed back export profit for another five years.
On the SEZ issue, the industry has demanded to retain the tax
incentives being enjoyed by these zones as their removal would
hurt exports and employment generation. During AprilSeptember, exports from these zones stood at Rs 2.21 lakh
crore as against Rs 4.63 lakh crore in 2014-15. About 500
proposals for SEZs have been formally approved by the
government, out of which over 200 are operational. This

proposal has been given yet another chance to the industries to

setup/operationalize their units in SEZ.
Ease of Registration
Specific rules and processes are awaited by the stakeholders
regarding proposals relating to amendment in Companies Act to
improve enabling environment for start-ups.
Hub for SC/ST & Women Entrepreneurs
A hub has been setup to support SC/ST entrepreneurs. INR 500
Croresearmarked for SC/ST and women entrepreneurs under
the Start-up India scheme. Further, entrepreneurship is
proposed to be taught through Massive Open Online Course
Scheme. This will open up access to quality educational
resources to all section of people across the country.
Overall, the budget for start-up has met expectations of
budding entrepreneurs. In addition to this, there are several
proposals like increase of turnover limit from INR 1 crore to 2
crores for businesses claiming presumptive taxation, Positive
changes in excise and custom duties, Mudra Yojanaetc,
highlighted in the budget. However, there should be lot of
thrust
given
by
executive
authorities
for
smooth
implementation of the proposals and schemes to attain vision
2020 of the government for start-ups!