Decoding Budget 2020 for start-ups

Decoding Budget 2020 for start-ups

Start-ups featured as the stars of the Indian Budget tabled in early February, with several new announcements that address funding, tax reliefs, data centre creation, among others.


  • Budget 2020 has demonstrated India's vision of being a leader in providing digital solutions by announcing measures which tackle the key pain points for the start-up community.

  • The government is currently considering a policy to allow private companies to create data centre parks which will bring in investment, technological growth as well as employment opportunities for the Indian youth.

  • The Budget also proposed a seed fund to support the stage of ideation and development of the primary-stage start-ups.

With the Union budget being rolled out, there has been a lot of optimism in the start-up ecosystem. The Budget 2020, along with the Finance Minister's speech, has well-demonstrated India's vision of not simply being a leader in providing digital solutions, but also one where technology is considered to be the bedrock for development and growth. Entrepreneurs have been excited about the benefits which have been rolled out. India's existing and emerging tech entrepreneurs could not be happier. The Finance Minister has doled out several long-standing wishes for the start-up industry while announcing the measures which tackle the key pain points for the community. Ranging from an infrastructure boost to relief in tax burdens, the 2020 budget has offered more benefits for the Indian start-up ecosystem than any other budget in the past.

The shining stars of the Union Budget 2020

The Finance Minister's task this year was not a cakewalk, given the need to stick to the financial prudence alongside trying to boost up a dragging economy. This aspect did not hinder her from accelerating the growth path for the start-ups and the entrepreneurs and that too at greater length. “Start-ups have emerged as engines of growth for our economy,” Sitharaman said. “...entrepreneurship has always been the strength of India. Even today, young men and women have given up greener pastures elsewhere to contribute to India's growth. They are risk-taking and come up with disruptive solutions to festering challenges...We recognise the knowledge, skills and risk-taking capabilities of our youth. He is no longer the job seeker. He is (a) creator of jobs. Now we wish to create more opportunities and remove road-blocks from his path.”

The present government is focused to transform India into a digitally empowered country. An extremely important announcement made in the budget was regarding the proposal of creating a policy to allow private companies to create data centre parks. This proposed policy would bring about investment, technological growth as well as employment opportunities for the youth of the country alongside providing the entrepreneurs with a platform to ensure structured data storage and security. Through leveraging the economies of scale in the process, one can ensure a reduced cost of data ownership as well as a lower cost per transaction. The new hope is that the present government would execute the stated plan well. It is expected that the budget would be majorly focused on protecting the stored data of sectors such as BFSI as well as large enterprises that consist of a major quantity of the critical data. The budget has even proposed a seed fund to support the stage of ideation and development of the primary-stage start-ups. The government is also handholding the start-ups on their path towards innovation. Along with the boost in infrastructure, the government has also proposed an investment of almost $1.1 billion over five years towards the national mission of quantum technologies and applications. Several entrepreneurs believe this step could go a long way for providing a boost to the Indian economy.

Additionally, the budget has also proposed the setting up of a digital platform to facilitate the seamless application and collection of intellectual property rights (IPR). The 2020 Budget went a step ahead in addressing the issues of the young companies. The ESOPs are an important tool for young start-ups that help to attract and retain highly talented employees in the business. It suggested deferring the tax payment on the employee stock option plan (ESOP) by five years or till the time an employee leaves the organisation or whenever he/she sells off their shares, whichever is the earliest. Apart from employees, new start-ups themselves were also provided tax reliefs. The budget even promoted raising the turnover limit from the present Rs 25 crore ($3.5 million) to a new limit of Rs 100 crore ($14 million) for start-ups which are allowed a deduction of 100 per cent of the profits for the first three consecutive assessment years. This would enable young organisations to take more risks and innovate to optimise their growth decisions in the formative years.

The budget has even proposed the setting up of an investment clearance cell through a portal which will provide end-to-end support, including the pre-investment advisory, knowledge regarding land banks, and facilitation of the clearances for the centre and state level. The budget also proposed that there is no need for audit for the MSMEs having a turnover of up to Rs 5 crores (around $700,000). This helps the start-ups to reduce their burden of compliance.

This budget has intimated the industry regarding the empathy that the government caters to the Indian enterprises. Such positive sentiments are evident from the government's initiative to roll out the 'no tax harassment' policies accompanied by the establishment of the investment clearance cell that is created for assisting the entrepreneurs in India. The Budget 2020 announcements are a reflection of the Government's positivity toward start-ups. It is a matter to wait and watch how the implementation of these announcements go ahead.

Dr Param Shah is Director - UK, Federation of Indian Chambers of Commerce & Industry (FICCI).

Disclaimer: The views expressed herein constitute the sole prerogative of the author. They neither imply nor suggest the orientation, views, current thinking or position of FICCI. FICCI is not responsible for the accuracy of any of the information supplied by the author.

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