Union Budget 2023-24, Start-ups and ‘Innovate for India’

1.????Ease taxation on ESOPs to ensure only single-point taxation on transfers/exits and other Tax Reforms: Under Budget 2022, the surcharge on capital gains such as ESOPs was capped at 15%. As per the provisions of the Income Tax Act, of 1961, the tax implications get triggered at two stages — at the time of exercise of options and then at the time of sale of shares. In the case of the first event, the ESOP is taxable in the hands of the employee. Market participants expect deferment at the time of payment of tax; employees who are granted ESOPs should be taxed only when they sell the shares. Start-ups also expect the expansion of 80-IAC to DPIIT-recognised start-ups as well. Currently, to claim exemptions under 80-IAC, a start-up must be certified by the IMB. It is also necessary to address the parity between listed and unlisted shares in case of capital gain tax. As Indian start-ups are gaining global traction; the government should also consider tax exemptions in foreign direct investments and maintain a sharp focus on start-up infrastructure development.

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2.????Automation in Value Chain Processes:?The Centre is likely to support start-ups in the field of artificial intelligence (AI), machine learning (ML), remote sensing, big data, blockchain internet of things (IoT), Geographic Information Systems (GIS) technology, drones, and robots to revamp India's primary and secondary sector. Signing Foreign Trade Agreements and thereby providing preferential access in priority sectors would accelerate exports from start-ups. The focus must also be placed on solving supply chain issues like micro cold storage, logistics, and disposal of waste sustainably.

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3.????Valuing Innovations with Tax Holidays: The government could explore augmenting innovation and participation in the start-up ecosystem by Innovation Bonds/ Early-stage Innovation Bonds/ Impact Investment Bonds similar to the existing NHAI and REC bonds which enjoy a tax-free status. Many start-ups in fields like environment conservation, waste management, resource optimization, etc. expect the government to reward them for their social efforts, in the form of tax incentives, tax holidays, preference in government contracts, etc.

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4.????Rationalisation of GST Input Credit Framework in Co-lending Arrangements: Fin-tech companies collaborate with other financial services players and in such arrangements, there’s a potential loss of Input Credit according to the current GST framework. Ensuring that the input credit is fully provided for will go a long way in ensuring that revenue leakages are avoided, and benefits of the same can be passed on to the end consumer.

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Sources: Entrepreneur, Invest India, Start-up India, Deloitte, PWC, Economic Times, Business Standard, inc42