The impact of Budget 2017 on the startup ecosystem

The impact of Budget 2017 on the startup ecosystem


Vakilsearch Staff

Vakilsearch Staff

6 Feb 2017, 15:40 — 3 min read

Startups had enormous expectations of Budget 2017, after the emphasis on startups over the past two years and the recurring emphasis on digitisation. Not all wishes were granted, as expected, but the community should be optimistic about the general direction in which the government is pushing the economy.


Over the past year, but in particular the last six months, the government has shown its willingness to make huge changes at great cost to set things right. We’ve seen this in the demonetisation initiative, the improvement in digital infrastructure, and we see this continuing in the decision to cap cash transactions, remove transaction charges on IRCTC, provide taxation relief on digital infrastructure providers and even lower the cap on anonymous funding of political parties.


Even the decision to offer a lower tax rate (of 25%, from the existing 30%) to companies with a turnover of less than Rs 50 crore is part of the same agenda as proprietors may now register their businesses to avail of the benefit. The startup community will gain tremendously from all such moves as the digital footprint of our country increases.


On taxation, a few policies favouring startups have been announced, though only two are likely to have any major impact. The first is the ability for a startup to carry forward losses even if the promoters’ stake is less than 51%. The second is the decision to extend MAT credits to 15 years. The others are likely to affect only a handful of businesses. For example, while the corporate tax rate has been reduced for businesses with a turnover of less than Rs 50 crore, not many startups pay significant taxes at that level.


Also, while profit-linked deductions for startups have extended to seven years from five years, it is necessary to fulfil several criteria before one is classified as a startup. Most businesses that have applied for this distinction are yet to receive approval. Also, this benefit applies only to businesses registered 2016-17 onwards, and, therefore, older startups have been neglected.


Other critical demands that haven’t been addressed are implementation of GST, the mere doubling of presumptive taxation scheme and the angel tax, whose removal was thought to be a near certainty in some quarters.


Despite the lack of certain important changes, however, startups are going to see the benefit of the digital push, and, hopefully, the government’s close watch on startups allows them to realise the ecosystem’s need for lenient tax policies in early years.



Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.


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Vakilsearch Staff

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