The cat is out of the bag! Budget, 2020 is here. It has elicited mixed reactions. While some feel, this was a pro-corporate, pro-middle class budget, others think the stress on simplification has led to further complications. FM stressed on entrepreneurship and introduced a slew of measures which would impact startups. We bring to you the key highlights of the budget, which may impact your startup:
1. Early Stage Seed Funding
The government proposed to provide early life funding to startups. This would include a seed fund to support ideation and development of early-stage startups. This would be crucial for those individuals who are thinking of starting up, but are not able to do so, due to lack of funds.
Currently, ESOPs are taxable at the time of their exercise and again at the time of their sale. The government proposed to defer the tax payment on ESOPs for a period of five years, or till the time the employee leaves the company or when they sell their shares, whichever is the earliest. This proposal is applicable to those startups which qualify as eligible startups under Section 80-IAC. This move will ensure that a startup is able to retain talent for a minimum period of five years. However, if looked at from an employee perspective, the move may not have benefitted the employees that much. Leaving before five years will entail paying a tax on their ESOPs and finding a buyer for ESOPs, may be a difficult task. Hence, effectively, the employees may be compelled to stay on in the startup for a period of five years.
3. Reduction in Tax Burden
Currently, a startup with a turnover of INR 25 Crores was allowed to claim deduction of 100% of its profits for three consecutive assessment years out of seven assessment years, if the turnover did not exceed INR 25 Crores. The government, has now proposed to increase this turnover limit from INR 25 Crores to INR 100 Crores. Further, the period of eligibility for claim of deduction has also been increased from seven to ten years.
4. Investment Clearance Cell
The government proposed the setting up of an Investment Clearance Cell. This Investment Clearance Cell is aimed to provide “end to end” facilitation and support, including pre-investment advisory, information related to land banks and facilitate clearances at Centre and State level.
5. Aadhaar based Tax Verification
The government proposed to introduce Aadhaar based tax verification system. This is aimed at simplifying tax assessment and verification of registered entities. There will be a system of cash reward to incentivize customers to seek invoice.
6. Benefits for MSMEs
Invoicing for MSMEs has been made easier, with the proposed launch of an app-based invoicing platform. The auditing threshold has also been raised from INR 1 Crore to INR 5 Crore. However, this threshold has been raised only for those MSMEs who transact less than 5% in cash.
7. Quantum Technology
The government proposed that INR 8000 Crores over a period of five years would be used for the creation of a National Mission on Quantum Technologies and Applications. Government’s commitment towards developing quantum technology may help the startups who are trying to evolve in this area.
8. Simplification in Tax Governance
The following measures have been taken for simplification in tax governance:
Faceless Appeal: The government proposed the introduction of faceless appeal, wherein any queries during assessment which are to be raised before a higher authority can be resolved through electronic means without any human interface.
Vivad se Vishwas scheme: Further, the government proposed the introduction of the `Vivad se Vishwas Scheme’ to reduce tax litigation. Under this scheme, a taxpayer is required to pay only the amount of the disputed taxes and in return, he will obtain a complete waiver of interest and penalty. This is subject to him paying taxes by March 31, 2020. Those who avail this scheme after March 31, 2020 will have to pay some additional amount. The scheme will remain open till June 30, 2020.
Taxpayers’ Charter: The government also proposed the inclusion of taxpayers’ charter in the Income Tax Act. This charter will enumerate taxpayers’ rights and will prevent tax terrorism.
Instant PAN based on Aadhaar: Government also proposed instant online allotment of PAN based on Aadhaar, without the requirement of filling up a detailed application form.
9. Amendment in Indian Contracts Act
One of the most important factors which makes India a stable investment destination is enforceability of contracts and parties honouring their contractual commitments. In order to boost investor confidence, government proposed further strengthening of the Indian Contracts Act.
10. Simplified Personal Tax Regime
The government has brought about a simpler tax regime, wherein tax rates are substantially slashed for individual taxpayers, if they choose to not avail deductions/exemptions. This is optional and the taxpayers are free to choose either the older regime or the new one.
11. Removal of Dividend Distribution Tax
The Dividend Distribution Tax(DDT) has been done away with for companies which declare dividends. It is now taxable only in the hands of the recipients. Further, to remove cascading effect, the government also proposed that the dividend received by holding company from its subsidiary will also be exempt from DDT.
12. Registration Process of Charitable Institutions Simplified
The government proposed to make the registration of charitable institutions completely electronic. Moreover, the registration of new charitable institutions which have not yet started their activities, can obtain provisional registration for three years.
13. Measures to Promote Innovation
The government stressed on innovation as the bedrock for promotion of startups and announced a slew of measures which would favourably impact them. These measures are:
Creation of a digital platform to facilitate seamless application and capture of Intellectual Property Rights.
Setting up of an Institute of Excellence, a centre to work on the complexity and innovation in the field of intellectual property.
Setting up of Knowledge Translation Clusters across different technology sectors.
In order to map India’s genetic landscape, two new national level Science Schemes, to create a comprehensive database have been proposed.
These measures aim at enhancing the ease of doing business of startups and promoting their growth. Regulatory hurdles are one of the key obstacles which prevent the burgeoning of startups.
However, what remains to be seen is that whether, these changes will actually bring about far-reaching effects and actually make doing business easier for startups.