Start-ups have little to cheer about

‘None of the start-ups from A.P. figure in the 111 such initiatives recognised’

Published - February 02, 2017 12:38 am IST

Srivishnu Ayyagiri

Srivishnu Ayyagiri

VISAKHAPATNAM: The Union Budget 2017-18 may have partially conceded the demands of the start-ups by increasing the three-year tax holiday to first seven years of existence from the current five. However, it has left a lot to be desired.

The period of profit-linked deductions for start-ups is applicable to those firms incorporated after March 31, 2016, and is still only for three years.

Also, the tax sop is available only to those start-ups recognised by the DIPP (Department of Industrial Policy & Promotion).

According to the status report in the Startup India website, only eight start-ups had been approved for availing themselves of tax benefit in 2016 out of 111 who applied.

Members of start-up forums of the city such as Vizag start-ups group on Facebook were vocal about the challenges faced.

Venkatesh Majji, co-founder of Red Solar, told The Hindu that there were very few positives for start-ups in the budget, but several practical hurdles to overcome.

“None of the start-ups from A.P. figure in the 111 start-ups recognised by the Startup India in 2016. To apply in Startup India, a firm needs to submit a recommendation letter from one of the incubation centres recognised by the Startup India. Vizag has only one.

Without the Startup India recognition, getting bank loan is another Herculean task. Also, very few start-ups break-even before five years, which makes the three-year tax holiday meaningless. We expected the Minimum Alternate Tax (MAT) to be completely taken off. Also, allocation of funds for R&D projects for start-ups like iOT would have been a welcome move,” said Majji.

Director and CEO of Greenline Labs, Srivishnu Ayyagiri, said: “The three years of tax holiday does not help much as it takes at least four to five years for a start-up to get to a viable level and make profitable revenues. The government should increase tax rebates to seven years for start-ups, so that they can re-invest savings into the company and expand faster into a wider market. This also helps in attracting seed, angel investors, and venture capital firms. The FDI policy reforms in the budget will help foreign companies to collaborate with the start-ups in the country and explore the market.”

Startup Village Chairman Sanjay Vijayakumar said, “Existing start-ups formed before 2016, which form 90% of the start-up ecosystem, do not get the tax holiday benefit. This, of course, is disappointing for those who have already started up and seeing whose enthusiasm, the Startup India took shape.”

MSME sector

Further, for the MSME (Micro, Small and Medium Enterprises) companies with an annual turnover of up to ₹50 crore, the budget announced a five percentage point rebate on corporate tax, reducing it to 25% from the earlier 30%.

Mr. Vijaykumar said that the conditions had been made better in the ecosystem with MAT for 15 years and reduction of corporate tax to 25%.

Co-founder and Director General, India SME Forum, Sushma Morthania, said: “The budget affirms the government’s commitment to empowering and enabling self-employed and entrepreneurial women and those from the weaker sections by doubling Mudra targets and pushing banks for higher credit flow for small businesses with the Stand-up India programme.”

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