Startups: Tax sops and funds for women, SC/ST entrepreneurs

Government today announced a slew of initiatives in the Budget for startups, including 100 per cent tax exemption for three years and allocation of Rs 500 crore for SC/ST and women entrepreneurs, aimed at facilitating growth for these new businesses.
"It is proposed to provide a deduction of 100 per cent of the profits and gains derived by an eligible startup from a business involving innovation development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property," Finance Minister Arun Jaitley said while announcing Union Budget 2016-17 in Parliament.
This benefit will be available to an eligible startup which is setup before April 1, 2019, he added.

Similarly to promote innovation, a special patent regime has been proposed with a 10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India.
Under the 'Start Up India Action Plan', the proposal is also to establish a 'Fund of Funds' which intends to raise Rs 2,500 crore annually for four years to finance the startups.
Besides, the Budget allocates Rs 500 crore for scheduled caste, scheduled tribes and women entrepreneurs in the Budget under the Stand Up India scheme.

Subho Ray, President of Internet and Mobile Association of India said the move will help startups with better incubation, talent and capital.

"The ease of registration process and the hope to complete the task in one day is a welcome measure along with the three year tax holiday for startups," Practo founder and CEO Shashank ND added.
However, some startups also found some announcements to be "mere lip service".
"I see a lot of announcements mere lip service vs making any actual on ground difference. For example, most large technology based scalable companies require heavy upfront investments and do not make any profits in first few years so, the tax holiday is not going to be very helpful... A lot more needs to change to actually facilitate the startup ecosystem in the long run," Shimply.Com founder and CEO Rajat Garg said.

Anurav Rane, CEO and founder of PlanMyMedicalTrip.Com added that while efforts by the government are really appreciated, its disheartening to see "categorisation of startups basis caste".
The Budget also proposes to insert a new Section 54EE to provide exemption from capital gains tax if the proceeds are invested in units of such specified fund, subject to the condition that the amount remains invested for 3 years failing which the exemption shall be withdrawn. The investment in the units of the specified fund shall be allowed up to Rs 50 lakh.
Also, to provide relief to those willing to setup a startup by selling a residential property to invest in the shares of such company, an amendment to section 54GB has been proposed.

This will provide long term capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital gains are invested in subscription of shares of a company and the individual/HUF holds more than 50 per cent shares of the company.
"Entrepreneurship learning through Massive Open Online Course (MOOCS) will provide access to educational resources across the country. These positive moves will spark a new energy in the startup sector which is expected to raise USD 700 million and will generate around 5,000 jobs in the next 12 months," SpiderG CEO and co-founder Ashwani Rathore said.

Besides, to tap tax on income accruing to foreign e-commerce companies from India, the Budget proposes a person making payment to a non-resident without a permanent establishment to withhold tax at 6 per cent for amounts exceeding Rs 1 lakh in a year for online advertisement.
This "equalisation levy" will only apply to B2B transactions.
Saurabh Srivastava, co-founder of Indian Angel Network said the 3-year tax exemption will reduce compliance burden and cash outflows, allowing ventures to invest in product development and scaling-up the businesses.