India’s startup community will gain from this year’s budget: Microsoft Ventures’ Managing Director

This year’s Budget to provide an enabling framework for the startups and the MSMEs sector, which is poised as a critical engine of growth in the country.

We, at Microsoft, believe that a robust regulatory environment and streamlined taxation policy can further enable a conducive macro-economic environment to nurture the growth and development of technology-based startups, and provide them with access to funds and incentives to support operations, and a simplified regulatory framework to bypass any hurdles to their growth.

With the Indian Software Product Industry Round Table (iSPIRT), we have identified areas where startup community can benefit the most in this Budget.

1. Ease taxation to encourage startups

We expect a streamlined regulatory and tax regime that will remove hurdles which impact startups and small businesses in India. These hurdles include venture investment, technology, and mergers and acquisitions.

We would also encourage the government to reclassify what constitutes services for tax purposes, to help clarify the application of the term to software product businesses, including startups.

Startups will also benefit from an exemption of income and sales tax, to facilitate their growth and development by making operations more viable. We also look forward to tax rebates on cashless transactions for startups.

2. Empower the existing and new incubators

Technology-based businesses are the foundation for future growth and development in India. The incubation of these businesses consists of mentorship as well as access to funding opportunities. To support the development and incubation of these businesses, we look forward to allocation of funds by the Government to strengthen existing technology-based incubation activities and to help establish new incubators over the next three years.

We also recommend that a provision of Rs 500 crore should be made to the Department of Science & Technology, Government of India out of the Rs 10,000 crore Start up Fund for SMEs, announced in the previous budget, for augmenting the SEED fund corpus to be provided to Technology Business Incubators.

Furthermore, a single window clearance mechanism for startups to start and close a business will enable the broader startup ecosystem to develop and thrive. Further, allowing incubation centers to exempt startups registered with them from complex regulations, will make this mechanism even more effective.

3. Rationalise the taxation regime for incubators and investors

As part of the government’s long-term vision for growth and development, we look forward to an enhanced taxation regime for incubators, including rendering them exempted from taxes as well as the customs duty which is levied on the purchase and import of goods needed for the incubators.

Given their role in mentoring and connecting innovators to business growth opportunities, we believe that funds contributed to incubators should be treated at par with investments in research and development (R&D) activities for businesses, and proportionally we believe that the entities that contribute funds to incubators should also be eligible for the 200% tax benefit that is currently applicable to R&D investments.

Further, we look forward to action by the government on making any gains through successful exits exempt from taxes. Taxation on investments that are made in startup enterprises must adequately reflect associated risks of such enterprises, especially as gains made out of successful exits are redeployed for investment. This principle is currently reflected in the pass-through status accorded to venture capitalist funds. We also believe incubators should be encouraged to approve and notify incubatee companies to avail of the benefits extended from time to time, and for them to be considered SEBI-approved investors.

India has an abundance of talent and has seen a rapidly growing number of entrepreneurs. We hope the government will facilitate this growth and development through putting in place the right steps towards creating a nurturing ecosystem for startups.


(About the author: This article has been contributed by Ravi Narayan, Managing Director, Microsoft Ventures in India)