The Indian startup ecosystem had pinned high hopes on Budget 2022 to enable new avenues of growth and innovation, and further attract global capital. And Finance Minister Nirmala Sitharaman didn’t disappoint – she proposed a slew of measures to boost the startup ecosystem in the country.
To create a digital economy, Budget 2022 announced a few tax concessions, to fulfil the promise of attracting further capital into this ecosystem. Another key announcement was on taxing cryptocurrency and other digital assets.
Prashant Maurya, Founder of blockchain-based startup Spheron, said this was a welcome move by the government. “As a first step, we highly welcome this move. It is a driver for us. Thirty percent is ok for us to go and pay the taxes. This was what everyone was looking forward to,” he said.
He added that this would encourage founders of crypto startups to build the product in India rather than going abroad for easier functionality.
Finance Minister Nirmala Sitharaman while addressing the Union Budget 2022
Tax incentives
Another move that was welcomed was the extension of tax incentives for startups by one year.
While this is a favourable move, Vicky Jain, Co-founder of uKnowva, a cloud-based HRM software, said it was “good only in the long run”.
“Despite many investments in society, there are a lot of startups that are bootstrapped and not funded. Their major problem is cash flows – and tax incentives might not help them much,” he said.
Vicky said most startups do not often generate revenue in the initial three years. Those years are focused on setting up the business and finding the right team rather than cash flows. Thus, he said, this does not make a significant difference for early-stage startups,.
“I hoped the finance minister would have announced 0 percent TDS for startups or given some incentives on that. That would have helped more on a day-to-day basis,” he added.
Lack of clarity
Speaking about the relief on taxation on ESOPs, Vicky said it would be beneficial for startups but mostly for employees.
“Earlier there was a lot of speculation around how to encash, what do I get in hand etc. The new move will improve employee loyalty by giving them higher ESOPs. This will lead to having more long-term employees who believe in the company’s vision and works towards it.”
Prashant, on the other hand, said there needed to be more clarity on this and on defining the asset class if companies were working from India.
“In crypto, we don’t work with the ESOP, but with the deal-token model. However, there exists a confusion. How do we treat the deal token? Is it going to be treated as an ESOP or as an asset class again?”
He said that this was a much needed start for blockchain companies, but the government was yet to mention whether crypto was legally accepted or not. “We hope that once it goes with the budget cycle and on the tax side, it will be accepted as the legal tender,” Prashant said, suggesting that blockchain experts be recruited into the government’s team.
Prashant is hopeful that the new measure to tax digital assets will lead to more power and eventually to more amendments in the space, depending on the benefits. “That is what we are betting on.”
