Modi government has been a huge supporter and promoter of the Indian Startup industry ever since it came to power at the centre in the year 2014. Keeping in tandem with its this ideology, the government is currently considering a proposal to raise the tax holiday for startups from the current three years period.
According to reports, with this, the government aims to boost an eco-system for budding entrepreneurs and job seekers in the country. A confirmed announcement about the same can be expected to be made during the budget session next year.
While the Department of Industrial Policy and Promotion (DIPP) has recommended to increase the three years tax holiday to a seven-year tax holiday, the finance ministry may agree upon providing a breather of four-five years on profits made by the startups in the country.
Finance Act, 2016 dictates that startups in India are eligible for an income tax exemption for a period of three years in a block of five years, if they get incorporated between April 1, 2016 and March 31, 2019. In order to avail the benefits, startups are required to obtain a eligibility certificate from the inter-ministerial board of the DIPP.
Since a majority of startups hardly make any profits in their initial years, with a certain percentage even failing to survive, Nirmala Sitharaman, India’s commerce and industry minister has been pitching for a greater tax support to startups for a long time now. She believes that the Indian Startup industry not only has a potential to just create entrepreneurs but also generate massive jobs, something which the country desperately needs right now.
Several startups had also pleaded her to persuade the finance ministry to increase the tax holiday period earlier this year in a meeting.
Recent trends have shown that even e-commerce biggies like Amazon, Flipkart, Urban Ladder and Paytm have faced huge losses. This further underlines the need to support startups for a longer period than the current three years period.
A latest report by Kotak Institutional Equities highlights that the losses of 14 e-commerce companies — including travel portals, e-retailers, furniture sellers, food ordering and delivery players — jumped an annual 138% to Rs 10,670 crore in the financial year 2015-16, courtesy increased employee costs and advertising spending.
India is considered as the youngest startup nation in the world with 72% of the startup founders less than 35 years of age. The country houses approximately 4,750 startups, the highest after the US and the UK.
The starting of the year saw PM Modi unveiling a package of incentives to boost startups in the country by offering them a tax holiday and an inspector raj-free regime for three years, and capital gains tax exemption. He also announced SIDBI managed ‘fund of funds’ of Rs. 10,000 crore. The fund will invest in Sebi-registered Alternative Investment Funds which, in turn, will be investing in startups.