Bengaluru, February 1

Budget 2023 proposed multiple benefits for start-ups, including extending the date of incorporation for income tax benefits till March 2024, a national data governance policy, and relief to start-ups in carrying forward and setting off of losses, among other announcements. 

In her fifth budget speech, the Finance Minister Nirmala Sitharaman said, “Entrepreneurship is vital for a country’s economic development. We have taken a number of measures for start-ups and they have borne results. India is now the third largest ecosystem for start-ups globally, and ranks second in innovation quality among middle-income countries.”

Certain start-ups are eligible for some tax benefit if they are incorporated before April, 2023. The Minister proposed extending the period of incorporation of such eligible start-ups by one year to before 1st April, 2024.

Also read:Budget 2023: With eye on elections, FM Sitharaman gives Capex boost to economy, appeases citizens with tax relief

Further, she proposed providing the benefit of carrying forward of losses on change of shareholding of start-ups from seven years of incorporation to ten years. The condition of continuity of at least 51 per cent shareholding for setting off of carried forward losses is relaxed for an eligible start-up if all the shareholders of the company continue to hold those shares. 

“At present, this relaxation applies for losses incurred during the period of 7 years from incorporation of such start-up. It is proposed to increase this period to 10 years,” the Minister added. Commenting on these announcements, Ritesh Agarwal, Founder & Group CEO of hospitality unicorn, OYO said, “The finance minister’s proposal to extend the date of incorporation for income tax benefits to start-ups by another year is bound to further that progress and promote new entrepreneurial talent. The decision to provide the benefit of carry forward of losses on change of shareholding of start-ups from seven years of incorporation to 10 years is another welcome move.”

Adding to this, Sagar Agarvwal, Co-Founder & Managing Director of Beams Fintech said,  “The extension of carry forward period on change in shareholding from 7 years to 10 years makes startup acquisitions more attractive, supporting consolidation in the industry and hence enabling exit opportunities for founders and investors.”

Data Governance Policy & Fintech Innovation

Further, the budget proposed bringing out a National Data Governance Policy that will enable access to anonymised data. Sitharaman said that to enable more fintech innovative services, the scope of documents available in DigiLocker for individuals will be expanded and an  entity DigiLocker will also be set up for use by MSMEs, large business and charitable trusts. 

The budget also proposed simplifying KYC process by adopting a ‘risk-based’ approach instead of ‘one size fits all’ approach. Further, in the case of business establishments required to have a Permanent Account Number (PAN), the PAN will be used as the common identifier for all digital systems of specified government agencies enabling ease of doing business. 

“The Data Governance Policy and KYC simplification will be definitive changers in the times ahead. I believe the policy will bring in an additional layer of privacy and trust for the ecosystem and enable start-ups and research entities to safely access non-personal data, and foster accelerated innovation and growth. Meanwhile, simplification of the KYC process keeping a risk-based approach in mind is in tandem with the needs of India’s digital transformation. Making PAN the common identifier for all online businesses will definitely ease the process of compliance for start-ups,” said Harshil Mathur, CEO & Co-Founder - fintech unicorn Razorpay.

Online Gaming

The Finance Minister also said the Indian Government will provide clarifications on taxability relating for online gaming sector and has removed the minimum threshold of ₹10,000 for TDS. Commenting on the same, Roland Landers, CEO, All India Gaming Federation said, “We are happy to note that the Finance Bill carves out the distinction between betting and gambling activities and online games, through introducing a new section 194BA which taxes a user’s net winnings from online games at the end of the financial year. While we await CBDT’s clarifications and guidelines in this regard, we are hopeful that the certainty in taxation offered by the budget announcement will be a huge stimulus for the growth of the online gaming industry.”

“The government in the Finance Bill has made a critical distinction between games of skill and games of chance, classifying them into separate sections. This signals the government’s recognition of the unique nature of each and the need for separate tax policies. With the introduction of two new sections — 194BA (for TDS of winnings from online games for online intermediaries) and 115BBJ (for computation of taxes for those who earn income from winnings of online games)—the government has cleared ambiguities regarding TDS calculation for online gaming and simplifies the process for both companies and users,” Vikash Sureka, Chief Financial Officer, Mobile Premier League (MPL) added.

The Government will also be setting up an Agriculture Accelerator Fund to encourage agri start-ups setup by entrepreneurs in rural areas. “This fund will aim at bringing innovative and affordable solutions for challenges faced by farmers. It will also bring in modern technologies to transform agricultural practices, increase productivity, and profitability,” the Minister said. 

Also read:Budget 2023: Naming millets as ‘Shri Anna’, FM announces firm steps for farm sector

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