Key Benefits for the Startups in the Union Budget 2016
The happiest people after Finance Minister, Arun Jaitley, presented the Union Budget for the year 2016, were the Entrepreneurs and the owners small businesses. Mr. Jaitley had announced various policies and schemes to boost small businesses and MSME sectors. These policies whereon the same wavelength as the Startup India Action Plan announced by PM Narendra Modi in January this year. Following are the key highlights of 2016 for startups:
- Three Years of Tax Exemption for Startups:
Finance Minister quoted, ‘100% deduction of profits for 3 out of 5 years for startups setup during April 2016 to March 2019. MAT will apply in such cases.’ MAT is Minimum Alternate Tax which calculates tax based only on “book profit”. Book profit is the profit made by the company but has not been realized yet. Startups can thus incur their losses themselves.
- Basket of funds reserved:
Funds worth, Rs 500 crore has been reserved for SC/ST and women entrepreneur under the Startup India Scheme in the Union Budget of 2016. The Finance Minister has also announced setting up of a fund to raise Rs 2,500 crore annually for four years to finance startups.
- Change in Tax and Duty:
FM has announced, ‘Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.’Non-banking financial companies are eligible for deduction in tax to the extent of 5% of its income in respect of provision for bad and doubtful debts.
Upgrade in the policy in last year’s budget is a silver lining for startups, as the government has removed excise duty on components and parts for the manufacture of routers, broadband modems, digital video recorder, charger or adapter, lithium-ion batteries, wired headsets or speakers of mobile phones. Earlier these components were slapped with as much as 12.5% of excise duty charges. So far many companies have set up in India, and this will boost the interest of foreign as well as domestic startups to set up something innovative in related fields.
- Presumptive Taxes:
Under section 44AD of the Income Tax Act, the turnover limit under Presumptive taxation scheme is to be increased to Rs. 2 crores so as to bring relief to a large of measures in the small businesses. This has also included professionals with gross income of up to Rs. 50 Lakhs, under this scheme.
- Provident Fund:
The tax service on single premium Annuity policies has been reduced from 3.5% to 1.4 % of the premium paid in certain cases. In addition to this, the government will contribute 8.33% Employee Provident Fund (EPF) on employer’s behalf to all new startup employees for first three years. Encouraging more startups to get registered with EPFO as 12% cost to startups will be saved under this scheme.