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Ruby Sinha

Ruby Sinha, Founder,, a one stop knowledge hub for women entrepreneurs.

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Union Budget 2018- A Mixed Bag for Startups & Women Entrepreneurs

Reduction of corporate tax for Micro Small and Medium Enterprises (MSMEs) to 25% for companies with a turnover of up to Rs 250 crore comes as a welcome relief to small companies.

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The Union Budget 2018-19 has been a mixed bag for entrepreneurs. On the one hand the Finance Minister Arun Jaitley did not abolish angel tax which the venture investors and startup founders were looking forward to, but on the other hand the budget offered enough avenues to encourage locally relevant startups in areas including agriculture, Fintech, artificial intelligence and insurance. The thrust on infrastructure development, healthcare, employment generation and agriculture could make budding women entrepreneurs think of ideas to tap the relevant markets.

The creation of a new regulatory framework for venture capital funds and angel investors, a national program for artificial intelligence, five lakh Wi-Fi hotspots in rural areas will not only expand technology use and internet access across remote areas but will also encourage the growth of internet based startups as they look to tap customers beyond big urban areas. This could facilitate growth and expansion of internet enabled services including e-commerce, online education, healthcare, mobile banking etc to new geographies.

So, if some women entrepreneurs feel that urban markets are already taken with plenty of startups chasing those customers, there’s a larger untapped market in remote and rural areas which they can tap with their services and solutions. For women entrepreneurs looking at high tech areas like Artificial Intelligence (AI), the budget provides room for them to scale and tap government business as well by creating relevant AI solutions in healthcare, agri-tech and education domains. Digital India allocation has also been doubled to Rs 3073 crore for 2018-19.

While highlighting the government’s initiatives like the Startup India programme and a venture capital focused taxation regime, the finance minister said that the government will take additional measures to strengthen their environment for their growth and successful operation of the Alternative Investment Funds (AIF) in India. Though what specifically will be done, remains to be elaborated.

Reduction of corporate tax for Micro Small and Medium Enterprises (MSMEs) to 25% for companies with a turnover of up to Rs 250 crore comes as a welcome relief to small companies. Earlier the ceiling was Rs 50 crore. This will boost ambitions of small startups to scale fast without worrying about a larger tax outgo. However in the US and China such companies are taxed at around 20% and the government could look at this in future budgets to further boost the ecosystem.

To encourage entrepreneurship, the government also announced relaxation of norms for startups to avail tax incentives. As per the proposed changes, income tax benefits will be extended to startups that get incorporated up to April 1, 2021, giving a two year breather from the earlier April 2019 deadline. Startups with a revenue of up to Rs 25 crore can avail exemption over a period of seven years, starting from the date of incorporation.

The definition of `eligible businesses’ has also been expanded to extend the benefit to startups engaged in improvement of products or processes or services or scalable business models with potential of job generation or wealth creation.

The proposal to bring back fixed term contracts in all sectors of the industry is another positive move. Startups often plan to scale and hire without realising how the market might react to their product or service. The move will enable companies to hire workers for short term assignments and terminate their services once the project is over. With this proposal employers are not mandated to provide retrenchment benefits to workers hired on fixed term contracts.

To boost women’s participation in formal sector jobs the budget proposed a lower rate of contribution towards schemes under the Employees Provident Fund Organisation (EPFO). This will not only help women employees but also women entrepreneurs to have more women working in their startups.

While there are positives several grey areas remain. For instance, clarity on what is an innovative startup remains blurred and so does the process of tapping government funds to start new ventures. And the much abhorred angel tax is still around. Overall, the budget seeks to make the environment easier for women entrepreneurs and hopefully the gaps will be addressed even as the startups ecosystem expands.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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