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Budget 2022 to keep the momentum for startups
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India’s startup ecosystem, the fastest growing across the globe, is expecting some policy and fiscal or tax measures from the Union Budget 2022, to keep the growth momentum. 

The Budget 2022 is expected to deliver the government’s vision to continue bolstering the entrepreneurial spirit in this new-age India of ‘job creators’.  

The department for promotion of industry and internal trade (DPIIT)-recognised startups have already created up to 6.5 lakh jobs in the country, and aim to have another 20 lakh jobs in the next four years. If one extrapolates this to the wider startup ecosystem, the job creation and potential is immense. 

Startups are expecting alignment of holding period of unlisted shares (to that for listed shares) of 12 months for treatment as long-term capital gains. Similarly, for employee stock option plans (ESOPs), it is a long-pendingask to defer taxation to the point of liquidity (as against the point of exercise). 

To enable the DPIIT-registered startups for organic or inorganic expansion, one may want to do away with issues surrounding taxability (under “angel tax” provisions) arising out of investments by such entities in India/offshore (as otherwise entrepreneurs may consider setting-up offshore structures for “ease of doing business”).  

Given the times we are in, there is a general expectation of reduction in GST rates for essential products and services (as life critical drugs, healthcare & supplements, education delivery, POS devices which are important for the digital drive, etc.) and for eliminating differentiation between online v/s offline models (which would power the economy with offline players tapping into the ecosystem, particularly in the SME &MSME space, and help expand their outreach through online distribution channels). 

Maintaining lower GST rates for low-priced products (say, in apparels) will also enable SMEs, MSMEs and household entrepreneurs, to access and scale in this new “digital market”. 

Startup sectors like ed-tech, fin-tech and health-tech are looking for reduction or rationalisation of GST rates for their equipment or services, along with easy access to funds and significantly ease licensing or approvals for operating businesses.  

Health-tech in particular would be supported if the government increases limits for tax benefits under Section 80D for medical insurance premium and provides tax incentives for setting up healthcare facilities in rural or remote areas. 

As an impetus to the governmental push around “vocal for local”, providing incremental tax incentives for manufacturing players and providing easy finance, especially in spaces such as D2C, electric vehicles, etc., would only help the cause.  

With around eight startup IPOs in 2021, there is an expectation to have access to a quicker process for public listing, including direct offshore.  

Similarly, regulators mays want to adopt a consultative approach and have continued dialogue with stakeholders, to avoid any “ban” akin situations and in reducing uncertainty in doing business. For instance, continued policy changes on the e-commerce space, uncertainty around licensing procedures for fin-tech players (which is prima facie “open” to regulation), is perhaps only slowing down the governmental initiative of digitizing India.  

Similarly, one may want to re-look policies in the ed-tech space and partnering with such players as a large part of the student population is within the K-12 segment which continues to be largely government-run.  

Similarly, EV businesses seek support on infrastructure or policy initiatives for charging stations, recognition of sector for priority lending terms, enabling smaller players (especially in the SME and MSME space) to qualify for benefits under the PLI scheme. 

As we progress as a nation on technology, clarity on crypto transactions and assets, as alsomeasures to ensure farmers have access to technology and adopt agri-tech solutions would be welcomed. 

As our home-grown startups continue to drive the country to economic revival and growth, the Budget should hopefully provide this ecosystem the necessary momentum to leap ahead. 

Ankur Pahwa, Partner - Strategy & Transactions and National Leader for the E-commerce, Consumer Internet & Start-ups, can be reached at ankur.pahwa@in.ey.com. 

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