What the Budget 2022 has on offer for startups

Finance Minister Nirmala Sitharaman has proposed slew of measures to boost the startup ecosystem in the country as she unveiled Budget for the next financial year.

Sitharaman has proposed to cap the surcharge at 15% irrespective of the amount of long term capital gains.

"The move will promote long-term equity investment in startups and is beneficial for the individual investors who are holding shares for more than 12 months and selling it thereafter," said Saurrav Sood, Practice Leader, International tax, SW India.

Further, a fund with blended capital, raised under the co-investment model, will be facilitated through NABARD. This is to finance startups for agriculture and rural enterprise, relevant for farm produce value chain.

The activities for these startups will include, inter alia, support for FPOs, machinery for farmers on rental basis at farm level, and technology

including IT-based support.

The government has also proposed to promote new age companies by facilitating ‘Drone Shakti’ through varied applications and for Drone-As-A-Service (DrAAS). In select ITIs, in all states, the required courses for skilling, will be started.

The FM has further suggested for setting up an expert committee to monitor mobilization of funds to start-ups through venture capitalists and private equities.

For Startups, capping the surcharge on long-term capital gains of all listed and unlisted stocks at 15% is a positive for the startups and (PE/VC/Angel) investors in the space, said Divam Sharma, Founder at Green Portfolio.

Nirmala Sitharaman has also announced to open up defence R&D for startups and academia with 25% of defence R&D budget earmarked.

Further, as an incentive for startups, period of incorporation of eligible startups has been extended by one more year.

"Startups have emerged as drivers of growth for our economy. Over the past few years, the country has seen a manifold increase in successful start-ups. Eligible start-ups established before 31.3.2022 had been provided a tax incentive for three consecutive years out of ten years from incorporation. In view of the Covid pandemic, I propose to extend the period of incorporation of the eligible start-up by one more year, that is, up to 31.03.2023 for providing such tax incentive," Sitharaman announced.

"In terms of startups, initiatives taken towards amping up the ease of doing business in India are welcome additions to the budget. Moreover, the steps taken for existing start ups like extending tax redemption and steps taken to attract more investment into the ecosystem is encouraging for the entrepreneurial spirit of India,” said Alok Mittal, Co-Founder & CEO, Indifi Technologies.