The finance Minister Nirmala Sitharaman recently tabled the Union Budget for 2020-21 in the parliament. Among the various announcements she made, the most significant ones were for Indian tech entrepreneurs.
India’s tech entrepreneurs were the most significant beneficiaries of this year’s budget. From fulfilling some long-standing demands of the startup community to announcing various steps to tackle startup troubles in India, Sitharaman doled out some favorable schemes for Indian entrepreneurs.
Learn about the startup predictions in India for 2020.
Let’s look at some of the most important announcements made by Nirmala Sitharaman on February 1.
Budget 2020 for Startups: 5 Perks For Startups and MSME’s
1. Establishment of GeM (Government e-Marketplace)
Sitharaman announced that the Government is moving forward for establishing a single unified platform for procuring goods, services, and other works. Government e-Marketplace is being created to offer ease and convenience to MSMEs so that they can purchase and sell products and services in a trustworthy environment. Presently, there are over 3.24 lakh vendors already registered on the platform.
2. Subordinate Debt for MSME entrepreneurs
Working capital is a key pain point for entrepreneurs running MSMEs in India. To tackle the issue, the finance minister proposed to introduce a subordinate Debt scheme for MSME entrepreneurs. Provided by banks to eligible entrepreneurs, the subordinate Debt will be fully guaranteed under CGTMSE (Credit Guarantee Trust for Medium and Small Entrepreneurs).
Learn more about the startup programs by the Indian government.
3. Increase in Turnover Threshold For Audits
As of now, it is mandatory for businesses, with a turnover of over INR 1 crore, to get their books audited from a qualified accountant. This compliance requirement has put a lot of burden on small business owners, including retailers, shopkeepers, and traders.
In this year’s union budget, the finance minister has proposed to increase the turnover threshold for audits by five times. It will be increased from INR 1 crore to INR 5 crore.
4. ESOP Taxation
ESOP refers to the ‘Employee Stock Option Plan’. Startup entrepreneurs, who want to employ talented professionals at low pay, usually grant them ESOP’s. To encourage this, Sitharaman has proposed to reduce several taxes applicable on ESOP’s. Under the current system, various taxes on ESOP’s generally lead to problems in cash flow, especially for employees who want to hold their shares for a long time.
5. New Tax Exemptions and Seed funding support for Eligible Startups
Presently, if a startup has a turnover of INR 25 crores or less, it is eligible for a 100% tax deduction on their profits for three (out of seven) consecutive assessment years.
To involve larger startups, the finance minister has proposed to increase this turnover limit to Rs 100 crores. It is quite certain that the new startups may not be profitable enough to claim this deduction in the beginning. The government has recognized this fact and proposed to increase the period to claim the eligibility from the current seven years to ten years.
The finance minister has also proposed seed funding support for early-stage startups. This scheme also includes ideation and development support. In its election manifesto too, the government had announced to set up Rs. 20 K crore seed fund for early-stage startups. Currently, there are around 416 active venture funds to support early-stage startups.
Learn more about the top funding options in India.
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