What The Budget Has In Store For Start-ups & Venture Capital Investors In India
The Union Budget for fiscal 2022-23 unveiled by the Indian Finance Minister Nirmala Sitharaman on the first of February, 2022, included several measures that could lead to a major boost for the economy as a whole. Some of them introduced in the budget would turn out to be great news to India’s investors, companies as well as the common public.
Start-Up Growth Over the Years
In the year 2021, Indian Startups have raised $24.1 billion, a two-fold increase over pre-COVID levels, while $6 billion were raised via public markets with 11 start-up IPOs. The Indian tech start-up base continues to witness steady growth, adding over 2250 start-ups in 2021, which is 600 more than 2020. India, accounting for 70 unicorns, added a record number of 42 new unicorns in 2021 across 18 sectors, third-highest after the US and China, with a cumulative valuation of newly-added unicorns standing around $90 billion, according to the report.
More than 61,400 start-ups have now been recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) according to the Economic Survey released on the 31st of January, 2022. At least 14,000 of these start-ups were recognized in the 2021-22 fiscal. The survey reveals how start-ups have grown excessively in India over the last six years by pointing out that 555 districts in India had at least one new start-up.
The Economic Survey, 2022 indicated that Delhi has become the start-up capital of India surpassing Bengaluru on the number of start-ups formed since April 2019. More than 5,000 recognised start-ups were added in Delhi, while 4,514 start-ups were added in Bengaluru between April 2019 and December 2021. Maharashtra has a total of 11,308 start-ups making it the state with the most recognized start-ups in the country.
Start-Ups Now Have Their Tax Incentives Increased by One Year
Finance Minister Nirmala Sitharaman has announced an extension of a year for the incentives provided to the start-ups registered.
In order to finance start-ups for agriculture and rural enterprises, a fund will be facilitated through NABARD which will be raised under the co-investment model. In addition, Sitharaman said that start-ups would support FPOs and provide technology to farmers.
In the case of newly incorporated manufacturing companies, a concessional corporate tax of 15% will be available for one more year, until March 2024.
Additionally, she said start-ups would be supported to facilitate ‘Drone Shakti’ through various applications and drone subscription services.
How Are VCs Affected by The Union Budget?
Income earned from cryptocurrencies and other virtual assets will be taxed from April 1, 2021 onwards. Thereby, the gains made in the current financial year will also be taxed.
Finance minister Sitharaman had also proposed to cap the surcharge at 15% irrespective of the long-term capital gains. This initiative can be beneficial to the individual investors who have been holding shares for more than 12 months and intend to sell them later as this promotes long-term equity investments in start-ups.
She has announced that the government will form an expert panel to encourage venture capital and private equity investments, following a record-breaking 2021 for PE/VC investments. The government, via this panel, will examine the various measures to scale up investments, indicating more policies that could help investors who are pouring foreign capital into Indian companies. Measures will also be taken to step up private capital in the infrastructure sector, Sitharaman said.