Budget 2021: Covid19 impacted, Struggling sector startups look forward to tax holidays

Covid-19 impacted Global start

Covid19 was impacted adversely on many sectors, including start-ups. Many start-ups are facing massive problems due to lockdown and many other restrictions after lockdown.

Pre-covid, most start-ups work from office spaces, but due to the covid-19, they are forced to move on to the option of work from home.

Start-ups belong to sectors like real estate, entertainment, tour, and travels are impacted heavily. Many start-ups providing B2B solution to these sectors also faced problems. These sectors are now demanding some relief in budget 2021 from the finance ministry.

Many business leaders meet the ministry and raise their concerns over the present situation. Their demand is for some relief in tax, and availability of funds to the Indian start-ups ecosystem.

Startups that are new and not standing with enough funds are facing problems to overcome from the situation.

Businesses started their regular activities after the start of unlocking the economy. But, it will take time to come on the routine path. The Indian start-up ecosystem needs government support to restructure its business model after the covid-19 tech revolution and change in the business opportunities.

Industry experts say that the government should not tax the ESOPs unless they are cashed out besides extending the tax holiday for such initiatives.

A Rs 1,000 crore package for seed investments in start-ups announced by Prime Minister Narendra Modi earlier this month and other fiscal measures during the pandemic has clearly signaled  the focus of the government on providing growth impetus to the ecosystem.

However, the stakeholders say that the much-awaited regulatory changes in easing the compliance burden, incentivising the domestic and foreign investments would be the key things to watch out for during the upcoming Budget that is scheduled to be announced on February 1. While the government has placed startups under the priority sector lending status, a regulatory system that addresses the tax parity concerns is the need of the hour. 

According to Neeraj Tyagi- Founder and CEO of We Founder Circle — a start-up investment platform— the previous budget did not completely address the expectations and requirements of the startup ecosystem.

“There were some misses including working capital crunch, tax parity on capital gains etc. After the Covid- 19 outbreak, start-ups are leading the technology adaptation across the sectors. This has further built an interest among corporates to invest in startups and technology-oriented projects. 

Therefore, this is the right time for the government to incentivise the startup funding and work towards 
relaxing the policies to encourage angel investors to invest more. Also, the government needs to push major fund allocation and also lower the GST which currently has narrowed the scope of maneuvering for startups,” said Tyagi.

“This is also an appropriate time to boost India’s manufacturing sector through enabling policies that improve its export competitiveness under the Aatmanirbhar Bharat initiative,” Pankaj Munjal, Chairman and Managing Director of HMC, a Hero Motors Company. 

“The EV industry in India is still at a nascent stage,” says Saurav Kumar, Founder and CEO of Euler Motors. “We need more flexible policies that will help incentivize the manufacturing sector, which are perhaps much needed in the post-pandemic scenario.”

The government should promote made-in-India technologies by creating EV technology parks across major hubs, along the lines of Software Technology Parks of India and Special Economic Zones, says Ravi Annaswamy, Co-founder of Numocity, a software as a service-based energy management company for EV fleets.

The creation of jobs in the EV sector is also important, says Pankaj.  

“Creating jobs and generating more incomes must be the objective of the Budget,” he says. “The government must undertake initiatives to generate more activity in the economy and create work opportunities. Launching infrastructural projects, particularly in rural and semi-urban India, investing in sustainable energy projects, and improving the startup ecosystem should be some priority areas for the finance minister.” 

“A seed startup that is yet not generating a revenue, is still expected to follow compliances that a medium or large company is expected to do. This is totally unreal and puts unnecessary burden on possibly the founder or the core team to manage the compliances or adds cost if outsourced. This needs to be made simple as it diverts energy from the core focus to non-value adding activities,” Dr. Gaurav Hirey, Founder and CEO of GoEvals, an HR Tech startup says.

Industry experts say that the government should not tax the ESOPs unless they are cashed out besides extending the tax holiday for such initiatives.

The pandemic has had a meaningful impact on the life of startups – but not always in expected ways. Some industries have thrived, even accelerated, while others now face secular declines, with structural transformations ahead. But overall, the net effect of Covid has been to accelerate the disruptive role of technology across industries.

Some Industries Are Struggling 

Industries struggling under Covid-19

On the other side of the ledger are the industries where startup companies have been hit hard by Covid, listed in Chart. For the startups in these industries, there are really three choices: first, cut costs, strengthen balance sheets and hunker down; second possibly prepare for a sale or shut-down; third put all resources behind transforming the business towards a new post-Covid secular future.

VC investors and startup board members who want to see their companies endure are now focused intently on the third, as crucial to their survival and resurgence.

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