key takeaways for India’s tech and startup industry

key takeaways for India’s tech and startup industry
Finance Minister Nirmala Sitharaman presented the last full Budget of the Narendra Modi-led government on Wednesday. The government announced several measures for the technology and startup sector such as extending the date of incorporation of startups for Income Tax benefits, increasing the allocation to the IT ministry by 40% to Rs 16,549 crore, an accelerator fund for agritech startups, and exemption of customs duty on manufacturing of lithium-ion cells, among others.

Budget 2023 at a glance

ETtech brings to you detailed coverage of the key takeaways for tech and startups from the Union Budget 2023-24.

Also in this letter:
■ Tax sops applicable to 1% of registered startups
■ Allocation to the IT ministry increased by 40% to Rs 16,549 crore
■ Agriculture accelerator fund announced for agritech startups


Tax sops applicable to only 1% of Indian startups: experts

startups

Even as the government proposed to expand the scope of tax sops offered to startups eligible under the Startup India scheme, industry experts said the measures would apply to less than 1% of the 84,000 startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT).

FM’s quote: “I propose to extend the date of incorporation for income tax benefits to startups from March 31, 2023, to March 31, 2024. I further propose to provide the benefit of carry forward of losses on change of shareholding of start-ups from seven years of incorporation to ten years,” Sitharaman said during the Budget speech.

What’s the context? Following the FM’s announcement, startups will be allowed to carry forward their losses incurred during the said period to the next financial year, when they can set the losses off against income. The tax holiday was first announced in the Budget for 2017-18, when the government had said that startups incorporated after March 31, 2016, could avail of a tax holiday for three years in the first seven years of their incorporation. For startups to be eligible for availing of the tax incentives, their turnover should be less than Rs 100 crore in any of the previous financial years.

Expert speak: Siddharth Pai, founding partner at early-stage investment firm 3one4 Capital, said the fiscal measures apply to less than 1% of the DPIIT-registered startups. “There was no mention of the rationalisation of the Inter-Ministerial Board regime, which is required to allow startups to avail of any of the benefits under the Income Tax Act, 1961,” he said. “(There was) no change in the Esop measures either – a longstanding ask of the Indian startup ecosystem. Measures to curb the flipping of startups, which was mentioned in the Economic Survey, have also not been brought out,” Pai added.

Also read: Budget 2023: Tech CEOs welcome digitisation push


Govt allocates Rs 16,549 crore to IT ministry, 40% higher than last year

Nirmala Sitharaman

The Union Budget 2023-24 allocated Rs 16,549 crore for the Ministry of Electronics and Information Technology, nearly 40% higher compared with Rs 14,300 crore in the previous Budget. Of this, the government has earmarked Rs 3,000 crore for the Indian Semiconductor Mission.

Details: Of the Rs 3,000 crore corpus, Rs 1,799 crore has been set aside for the modified scheme for setting up compound semiconductors, silicon photonics, sensors fab, discrete semiconductors fab, and semiconductor assembly, testing, marking and packaging (ATMP), outsourced semiconductor assembly and test (OSAT) facilities in India – a first-of-its-kind.

The Budget has also assigned Rs 1,000 crore for the modified scheme for setting up semiconductor fabs in India, while Rs 4 lakh has been allocated for the scheme to set up display fabrication units in India.

Digital payments in focus: To further augment the digital payment capacities, the government has earmarked Rs 1,500 crore for the promotion of digital payments. This scheme facilitates banks in building a robust digital payment ecosystem, promoting RuPay debit card and BHIM-UPI digital transactions across all sectors. Though higher than the Rs 200 crore allocated in the Budget for 2022-23, the outlay is lower than the revised estimate of Rs 2,137 crore.

Not all’s a hit: However, the Budget has reduced the allocation of funds for the promotion of electronics and IT hardware manufacturing under the Modified Special Incentive Package Scheme (M-SIPS), the electronics development fund, and the manufacturing clusters scheme, from Rs 1,200 crore to Rs 700 crore.

Also read: Budget 2023: Experts laud government’s focus on emerging technologies


Duty exemption on battery cell equipment may reduce EV prices

EVs in India should not be too silent

The government’s plan to exempt custom duties on components required to manufacture lithium-ion cells is likely to benefit domestic EV manufacturers. Industry players told us that a boost in domestic manufacturing of battery cells will further help to bring down the prices of EVs for the end consumer.

Quote, unquote: Pankaj Sharma, managing director and cofounder of battery cell maker Log9, told ET that equipment adds significantly to the cost of manufacturing battery cells and a customs duty exemption will help reduce the final price.

“In lithium-ion cell manufacturing, equipment plays a big part….,” said Sharma. “In India, there are no equipment manufacturers so we are all importing components from Germany, China among other countries.”

“It is a growth-oriented Budget but we would have liked some more specifics for the EV sector – like harmonisation and simplification of the Goods and Services Tax (GST) along with the reduction to 5% for batteries would give a fillip to EV adoption,” said Amit Gupta, cofounder, and CEO of EV and battery swapping company Yulu.

Some misses: Though “green growth” was a focus area in the Budget, the industry had multiple other demands. Some original equipment manufacturers (OEMs) expected a reduction of the GST for different components to 5%. Though the final price of an EV comes in the 5% bracket, the taxes of different components that go into an EV differs.

Also read: Govt to expand scope of Digilocker, set up AI centers, streamline KYC

TWEET OF THE DAY


Agriculture accelerator fund announced for agritech startups

Agri Sector

The FM announced the government’s plan to set up an agriculture accelerator fund for young entrepreneurs in rural areas to transform agricultural practices through the use of technologies and bring innovative and affordable solutions for India’s farmers.

What is it? Industry experts such as Omnivore managing partner Mark Kahn and Bharat Innovation Fund venture partner and ThinkAg co-founder Hemendra Mathur told us that the fund will most likely be a fund of funds that will distribute the process of selecting investments among incubators and venture capital investors.

Agritech boom: According to the Economic Survey 2022-23 tabled in Parliament on Tuesday, agritech startups have raised around Rs 6,600 crore over the last four years from private equity investors, witnessing a growth of over 50% per annum. Over 1,000 such agritech startups are assisting farmers in improving farming techniques, the Survey said.

Agristack: Sitharaman reiterated the government’s vision to emulate an IndiaStack for the agricultural sector. Industry experts added that having an AgriStack – a digital public infrastructure for agriculture that will be an open source, open standard, and interoperable public good – has been in the works since 2017.

Having a digital solution for tracking farmland ownership data will enable farmer-centric solutions through information from crop planning to market intelligence.


Govt introduces new sections in I-T Act to tax online gaming

Govt introduces

The government has introduced two new sections and amended one section in the Income Tax Act to separate online gaming platforms from betting and gambling activities.

Details: The government has introduced Sections 194BA and 115BBJ to tax income that users earn by winning on gaming platforms. Section 194BA deals with tax deduction at source (TDS) while Section 115BBJ prescribes the tax rate on the winnings from online games. Both sections will take effect from 1st July 2023.

In the Finance Bill, the government said that Section 194BA is being introduced to tax a user’s net winnings from online games at the end of the financial year.

Industry response: “While we await CBDT’s [Central Board of Direct Taxes’] clarifications and guidelines in this regard, we are hopeful that the certainty in taxation offered by the budget announcement will be a huge stimulus for the growth of online gaming industry,” said All India Gaming Federation (AIGF) chief executive Roland Landers while welcoming the introduction of Section 194BA,

Games24x7 chief financial officer Rahul Tewari said the removal of the minimum threshold of Rs 10,000 for TDS deduction is a progressive step as the government is creating a new section for the online gaming industry.

Also read: Digital public infrastructure for agriculture will be set up as open source

Today’s ETtech Top 5 newsletter was curated by Siddharth Sharma in Bengaluru and Gaurab Dasgupta in New Delhi. Graphics and illustrations by Rahul Awasthi.