The 2017 Union Budget didn’t have many sops for startups other than the MAT extension of period of carry forward from 10 years to 15 years and the challenge still remains in terms of actual cashflow for the startups.Many SOPs for the start-ups were announced by the Hon. Prime Minister during the launch of Start-up policy in January 2016.
The main positive aspect which I see for startups and SMEs for companies with less than Rs 50 cr of turnover is that tax rate has been reduced from 30 to 25% which should come as a big relief for startups. Most of the startups we invest in have less than Rs 50 cr revenues. Increasing the period of availing the 3 year tax holiday from 5 to 7 years is a welcome move however last year only a handful of startups were granted this exemption. Hence a much more clear policy on this would have been beneficial to the startup ecosystem.
On digital transactions there has been a significant boost to the entire sector. The investment in infrastructure to boost digital transactions should support the entire ecosystem. Secondly the target of about Rs 2500 crores of digital transactions over the next 1 year facilitated through BHIM, UPI usage should be an interesting area to look at. Taxation relief for digital payment equipment manufacturers will also encourage more hardware players in the segment.
Most of the fintech companies in the space should get benefit from the increased focus of the budget on the digital payments ecosystem. The fact that cash transactions of over Rs 3 lakh are not permitted and the cash expenses allowance is reduced to Rs 10k should benefit the online payment companies like FTCash.
Also, some clarity is required in regards to the usage of cash and also the incentive schemes announced for digital transactions.
Also it was quite interesting to see the suggestion for a payments regulatory board. This will ensure that any friction between public and private digital payment players should work in an amicable manner so that users or the ecosystem in general are not adversely affected. When it comes to Aadhar pay the implementation is yet to be seen however the potential to make digital payments without the need for a bank account, payment instrument or even a mobile phone is certainly ambitious and if executed well can be a landmark moment in India's payment ecosystem.
Some clarifications with respect to Section 56, 68 and 115 of the Income Tax are still required and are yet to be seen in the fine print of the Budget.
Overall it was encouraging to see the government sharpening its focus on a digital and cashless economy however lack of many sops for the startup ecosystem including the venture capital and private equity industry leaves much to be desired.