Nirmala Sitharaman, India’s Finance Minister introduced the budget for fiscal year 2022-23 on
Tuesday. The advantages offered to start-ups have been extended for another year.
The Finance Minister has suggested prolonging the period of incorporation for prospective
startups by one year, to March 31, 2023 with a view to provide tax benefits to more
entrepreneurs in the country. Startups that were formed before March 31, 2022 were eligible
for a tax credit for three years out of ten from the date of incorporation. Entrepreneurs who
start businesses by the end of March next year would be eligible for tax advantages, according
to Finance Minister Nirmala Sitharaman’s Budget announcement on Tuesday.
“Start ups have emerged as drivers of growth for our economy. Over the past few years, the
country has seen a manifold increase in successful startups. In view of the Covid 19 Pandemic,
the Union Finance Ministry proposes to extend the period of incorporation of the eligible start
ups by one more year.” The Finance Minister said while presenting the Budget.
In the last two years, Indian startups have become a celebrated success story, with a record
number of companies hitting unicorn status.
With more job opportunities, tax perks, and investments, the country's start-up ecosystem is on
the rise. The proposed extension of tax incentives in the Union Budget will help to bolster the
country’s economic ecosystem.
In addition, the Minister proposed extending the one-year capital gains tax exemption for
investments in start-ups until March 31, 2022.
“In order to incentivise startups in the country, I propose to extend the eligibility for claiming
tax holiday for startups by one more year till March 31, 2022.In order to incentivise funding for
the startups, I propose to extend the capital gains exemption for investment in startups by one
more year till March 31, 2022,” Sitharaman said.
Startups now are largely regarded as major engines of economic growth and job creation.
Startups can generate meaningful solutions and so operate as vehicles for socioeconomic
development and transformation through innovation and scalable technology.
Budget 2022 came across a sigh of relief for the startup community. Startups sometimes
struggle to meet their working capital needs during their early years of operation. As a result,
extending the tax exemption for startups for another year is a positive step that will likely
inspire even more innovation and growth from the startup sector.
This budget presents a significant opportunity for start-ups in the areas of defense, agriculture,
drones, fintech, and mobility. The focus on digitalization across sectors will pave the door for
start-ups to innovate. The implementation of a digital rupee based on blockchain and other
technology will expand India’s startup potential.
Additionally, the push for 5G and internet services in 2022 will accelerate an entrepreneurial
culture and strengthen India’s position on the global technology innovation map.
As economic recovery is expected in the short-term, increased consumption will be fueled by
the growth of the upper-middle and high-income segments of the population. As a result, the
size of the Indian market provides considerable room for startups to expand.
The demographics of Indian population are conducive for growth of startup ecosystem. Half of
the people in the country are under the age of 25. The approximately 700 million people born
between the late 1980s and the early 2000s have material desires and the financial ability to
spend. As a result, they represent a sizable segment of the population capable of absorbing the
innovative goods and services offered by entrepreneurs.
Furthermore, with Aadhaar, Jan Dhan, UPI, and India Stack, State Innovation (NPCI) is leading
the revamp of the digital payments ecosystem. Market access hurdles have been reduced as
India’s internet connectivity has grown, creating a favorable environment for startups.
Budget 2022 marks a significant shift in the narrative, with new technology themes such as
fintech, drone as a service, EV and battery swapping technology, edtech, and others receiving
due attention in the Budget speech and kickstarting an entrepreneurship revolution.