Yay! Budget Likely To Propose Service Tax & Excise Duty Exemption For Startups!



Someone tweeted rightly, “In China, things happen because of the government. In India, things happen in spite of it”. Guess the Modi government wants to change this.

Come February and all of us look forward to the Union Budget, especially the business sector. The grapevine has it that the startup landscape is up for some great tax reliefs. The Union government proposes to cut the excise duty and service tax for startups for a certain justifiable period.

Still under talks, the government lead by Mr Jayant Sinha’s vision, wants to exempt all tech and manufacturing startups from excise duty and service tax for a definite period.

Though the period and the criteria have not been formulated, it’s a welcome proposition for the Indian Startup hub!

The ‘bonafide’ startups that register with the Department of Science and Technology will be entitled for a tax holiday for specific financial years until their revenues stabilize. Also startups may expect grants of upto 10 crores to be given from the government’s side. The Modi government that came up with ‘Make in India’ which has been promoting 10,000 startup warehouse in prominent startup hubs wants to make the tax structure simple.

Bringing investments from every country he visits Modi has ensured that our business sector looks glorified but the ease in doing business in our country stands at 142nd position as per World Bank. Singapore still remains the top city for investors and entrepreneurs, wonder why, read below

Number of Indian Startups +4100 Indian startups since 2012
Tax structure First 3 years- No Tax
Subsequently- 17% tax (while we pay 30% corporate tax in India)
Red Tape Zero corruption
Investment Early stages of the startup can be funded by the Singapore government upto 85% and the abundance of angels and VC make it easy for any startup to operate
Infrastructure No glitches and has the most non-notorious government officials

Not only has Modi’s visits attracted investment, the times have come where foreign institutional investors and MNCs such as Softbank, Twitter, Facebook, Google, Microsoft etc are handpicking startups in India and funding them to enjoy the up slide. So yes the time for the proposition couldn’t have been better.

The NASSCOM startup report reads, “India currently has around 3100 startups in the technology product and digital space and its the 3rd largest startup ecosystem globally adding 800 startups annually. By 2020 there would be more than 11500 startups, employing over 2.5 lakh people. Indian startup ecosystem has seen around 300 VC/ PE and 225 angel investment deals worth over USD 2 billion over the last few years. There are over 20 M&A’s worth approximately USD 1 billion happened in the last 3 years.”

Demographic Startup segregation

Bangalore 28%
Delhi NCR 24%
Mumbai 15%
Hyderabad 8%
Pune & Chennai 6%

As per the Times Internet article, “Every day nearly over two startups are set up in India. Industry members estimate that for every hundred new ventures, at least eighty fail.” Most of the ventures shut because of the cash crunch.

For startups, revenue left for ploughing back into the business is sometimes negative, forget entrepreneurs taking home some earnings. The first few years of establishing are the most taxing stages as even the government takes away a huge chunk of their profits. Hence the excise and service tax exemption will be a much needed shot in the arm for Indian startups.

This isn’t an out of the box policy by the government, perhaps copied from other developed countries but for once the copying will benefit Indian entrepreneurs. If the government still is contemplating on it, announce the same and see the SENSEX go up!


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