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What Budget 2016 means for Startups and Small Businesses

What-Budget-2016-means-for-Startups-and-Small-Businesses

29th February was a rather eventful Monday, compared to other drab ones. It started with the Oscars 2016, where our beloved Leo finally managed to bag the Oscar in the Best Actor category. However, an early morning gave way to a rather serious noon, as the nation’s Finance Minister Arun Jaitley presented the Budget 2016.

We are sure by now you have got your dose of the budget and how the common man will benefit from it, along with all the items that are likely to get dearer or cheaper. However, on close inspection this year’s budget was a stark contrast especially in terms of what it means to startups and small businesses.

Budget 2016 looks promising if we talk about the ease of doing business, taxation, and access to capital for startups and small businesses. Confused? Let us break it down for you to provide more clarity and gain understanding.

What Has Mr. Jaitley Brought to the Table?

The Finance Minister seemed to replicate PM Narendra Modi’s words when he said that startups generate employment, bring innovation and are expected to be key partners in ‘Make in India’ programme. Mr. Jaitley substantiated his point by announcing a 100% tax deduction programme for 3 out of 5 years for startups approved before Financial Year 2019, under the Startup India scheme. Moreover, capital gains will not be taxed if invested in regulated/notified Fund of Funds and by individuals in notified startups, in which they hold majority shares.

Additionally, the scope for Presumptive Taxation Scheme under section 44AD of the Income Tax Act has been broadened. This means the limit of turnover or gross receipts will now be increased to Rs. 2 crore from the present Rs. 1 crore.

What more? Small businesses will be pretty glad to learn that the corporate income tax rate for the next financial year, with a turnover less than Rs. 5 crore, is proposed to be lowered to 29%. Besides, Assessing Bodies enlisted by the Ministry of Skill Development and Entrepreneurship have been proposed to be exempted from Service Tax.

Considerable Initiatives for Budding Entrepreneurs

Till now unlisted companies use to attract Long Term Capital Gains Tax (LTCG) of 20% till a holding period of 3 years. However, Budget 2016 has brought some relief on this front, as the FM has chosen to reduce the holding period from 3 to 2 years.

Jaitley also stated that provisions will be made to enable registration of a company in a single day. Earlier PM Modi had said the same when he announced that 1-day incorporation with the help of a mobile app would soon be a reality.

The FM added that the government wants to bring entrepreneurship at the doorstep of youth thorough the Pradan Mantri Kaushal Vikas Yojna. For this purpose, it has been decided to set up 1500 multi skill training institutes across India, with a budget of Rs. 1700 crore.

Furthermore, with the aim to benefit small entrepreneurs, the Pradhan Mantri Mudra Yojna has been launched. Rs 1 lakh crore from 2.5 crore borrowers have been reported from Banks and financial firms for FY 2015-16. FM plans to raise this figure to Rs. 1.8 lakh crore.

So, how does Startups Stand to Gain?

Now, this year’s Budget is indeed a great footstep to provide a much needed boost to startups and create an environment for them to excel, as a recent report states that startups in India are expected to raise $700 million and 5000 jobs in the next 12 months.

The tax benefits and added initiatives that have been announced by the government in this year’s budget can surely pave way to create an atmosphere that fosters startups and small businesses. The Finance Minister’s intentions were clearly stated when he remarked – “We want to bring entrepreneurship at the doorstep of youth thorough the Pradan Mantri Kaushal Vikas Yojna.”

We all know that startups are more vulnerable in the initial few years, while setting up their business. The announcements made in the Budget would mean that startups would have to worry a lot less on tax hassles and can easily focus more on innovation and strengthening their core business.

P.S. – On a lighter note, something must be said here. Startups usually face huge amounts of stress and this makes the employees more susceptible to a certain kind of addiction, famously known as Cigarettes – something which the government surely didn’t pay heed to in this year’s Budget. The message is quite clear here – stop smoking and start innovating!

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