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What the FY 2014 Budget means for the Startup Ecosystem in India

The Honorable Finance Minister Arun Jaitley's maiden budget has presented a mixed bag of news for start ups operating in India. Most of these aspects affecting Indian businesses are highlighted below:

The good news first:

A Rs 10,000 crore fund will be set up to act as a catalyst to attract private Capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies. This is earmarked as venture fund for SMEs and startups.

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A Technology Centre Network will also be established to promote innovation, entrepreneurship and agro-industry and for this, a corpus fund of Rs. 200 crore will be set aside.

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A new definition of MSME will also be coined and there will be a change in parameters that denote a company as micro, small or medium enterprise.

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An entrepreneur friendly legal bankruptcy framework for SMEs to enable easy exit from failed startup ventures will also be set up.

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A nationwide "District level Incubation and Accelerator Programme" will be set up that would take up incubation of new ideas and provide necessary support for accelerating entrepreneurship.

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The FM also announced that the debate on goods and services tax will soon end, but as yet, there is no clarity on what the concept of a Central GST will be. The introduction of GST is expected to help eCommerce firms like Flipkart and SnapDeal.

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The government also allocated Rs 500 crore for internet connectivity in villages which will benefit the online economy of India which has about 243 million internet users. This move will open up more avenues for the technology startups to reach out to an exponential number of new consumers.

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Raise in FDI cap in Insurance sector to 49% from 26% will also benefit Startups such as Bankbazaar and PolicyBazaar.

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Introduction of e-visas at nine key airports is also expected to help travel booking startups such as WeAreHolidays, Stayzilla and Yatra.

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Entrepreneurs from rural areas and Dalit communities will stand to gain from a Rs 200 crore fund which will be managed by Industrial Finance Corporation of IndiaBSE -2.04 %.

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A programme called 'Skill India' will be launched to train resources

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All the Govt departments and ministries will be integrated through E-platform by Dec 31 this year

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Hasthkala academy will be set up for revival of handicrafts and a fund of Rs 30 crore has been set aside for this.

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Allowance @ 15% for investment more than Rs. 25 crore in new plant and machinery by manufacturing company. The benefit available upto 31.03.2017.

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30% of expenses will be disallowed for non deduction of tax instead of 100%.

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Investment linked deduction extended to slurry pipelines for the transportation of iron ore and semi-conductor wafer fabrication manufacturing units.

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Sunset date u/s 80‐IA for Power sector has been extended for a further period upto 31/03/2017 .

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Loading/unloading and transportation of cotton exempted from service tax.

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Indian Custom Single Window Project will be taken up for facilitating trade

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Export duty on bauxite enhanced from 10% to 20%, Excise duty on footwear reduced from 12% to 6%, Colour picture tubes exempt from customs duty, Reduction in excise duty for specified food package industry from 10% to 6%

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The not-so-great news

To encourage prompt payment of service tax, new interest rates on delayed payments u/s 75 of Finance Act, 1994 have been prescribed:

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Extent of delay
Simple Interest p.a.


upto 6 months
18%


More than 6 mths, upto 1 yr
18% for first 6 months and 24% for the remaining months


More than 1 yr
18% for 1st 6 mths, 24% for 2nd 6 mths and 30% for remaining mths of delay



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This new interest rate is applicable from 1.10.2014.

Service tax is now levied on radio-taxi services, which is likely to push cab operators to hike prices. Service tax on radio taxi industry has created concern amongst taxi aggregation startups.

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Online and mobile advertising have been removed from negative list.

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Imposition of a lock-in of 3 years for angel investments else it will be taxed at 30 per cent if money is taken out prior to that.

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Increase in penalty to 30 per cent interest per year on pending tax liabilities

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No clarity on fund manager for Rs 10ooo crore VC fund.

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Startups have to now open a separate bank account to receive funding. They can't touch the money, before share allotments.

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