Why right now is the best time to start a business in India?

India has emerged as the second biggest fintech startup hub in the world, according to a report by the MEDICI. India has received a total of $4.3 Billion towards start-up funding in the year 2018. In 2018 itself, around eight start ups gained the desire unicorn status.

It is interesting to see, that, the valuation of many startups that deal in advanced technology are on an upward trend. This upward trend is a welcome move since this leads to increase in the influx of early stage venture capital funding in the country.

Startups are instrumental to India’s journey of becoming a five trillion economy. Startups have generated most number of jobs in the country. In 2018 alone, startups generated 40,000 jobs.

The Union Budget 2019, presented by Mrs. Nirmala Sitharaman, housed a shining star which was it’s focus on startups. The Finance Minister has assiduously begun the process of clearing the mess and clutter around the tax formalities which have hampered ideas from transforming into business units.

Angel Tax Relaxation

Up until now, startups had additional hassle of going through scrutiny even after stating the source of income. Startups that got funding from big investors at premium rates encountered this deterrent. However, easing the pain of startups, startups offering requisite declaration and information will not have to go through scrutiny. To further simplify the process for investing in startups, the identity of those who invest I startups will now to established by a simpler process, e-verification. These measures will mean that the taxman will no longer be empowered to scrutinize the source of funds raised by startups henceforth. A separate committee will be created to administer the various issues that startups face due to angel tax.  

The relief from scrutiny was previously just limited to startups which raise funds from Category-I Alternate Investment Fund (AIF). The Category -I Alternate Investment Fund does not require the startup to justify how the fair market value of shares issued hence.

But keeping in mind the focus on startups and how they pave the way for India to become a five trillion economy, this benefit has been extended to Category -II AIF as well. This means that startups in Category- II shall also be able to raise funds from debt funds, private equity funds and real estate funds without having to justify fair market value of shares issued to them.

Startup TV!

The Department of Industrial Policy and Planning will be conceptualizing a TV channel specifically for startups. This aims to create a platform for startups, new businesses and venture capitalists to meet for their common benefits and discuss problems faced by them. This will be a good opportunity for startups looking for funding as well. Adding to the list of benefits, this TV channel will also be actively addressing other problems that the startups face like planning their tax strategies. This channel was proposed by the DIPP back in 2016 and its effective implementation will help the startup ecosphere. This channel will be the 22nd member of the DD family. The launch of this channel also was announced loud and clear by finance minister Nirmala Sitharaman in her Union Budget 2019 on July 5.

The Road Ahead

The Union Budget 2019 has brought a lot of attention to the startup ecosystem. The relaxation in taxation will provide a boost to startups. Many other changes in education, labor laws and the rental housing sector will also have direct impact on the startup ecosphere. The budget is visionary and with time we shall be able to see the results of the proposed changes.

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