Here’s what the budget does to promote innovation and nurture startups

By : |February 28, 2015 0

BANGALORE, INDIA: All eyes were set on the budget today to see what it does to push the government’s ”Make in India” campaign. But the finance minister Arun Jaitley has chosen not to go overboard with the vision and tried to look at some ground realities instead.

Keeping the long-term vision of creating a strong start-up ecosystem in mind, finance minister tried to create the base of an innovation and business friendly environment in the country to encourage the young entrepreneurs.

To foster a culture of innovation and R&D, and turn India into a world-class innovation hub, the budget proposes setting up of an Innovation Promotion Platform involving academics, entrepreneurs and researchers. A sum of Rs.150 crore has been alloted for this purpose initially under the ATAL Innovation Mission(AIM).

An amount of Rs.1000 crore has also been allotted to startup incubation and facilitation programmes, particularly in technology-driven areas under Self- Employment and Talent Utilisation (SETU) prorammes.

To facilitate technology inflow at low costs for the startups and small businesses, the budget also proposes to reduce the rate of income tax on royalty fees for technical services from 25 percent to 10 percent.

However budget has drawn mixed reactions from the startup community. Safir Adeni President – TiE (The Indus Entrepreneurs) Hyderabad has also  says, “It is encouraging that the government has laid emphasis on job creators by promoting entrepreneurship. However, so far there were talks of Rs. 10,000 allocation for startups so we don’t have a clarity whether in this budget the allocation of Rs 1000 crores under Self Employment and Talent Utilization (SETU) for the startups is in addition to the same or it is Rs. 1000 crore only now.”

Alan D Souza, CEO of a a Bangalore-based startup, Vavia Technologies says, “Rather than announcing such funds, more focus needs to be given on how utilization of such funds have impacted job creation and then additional support that can be provided for the same. The proposal to reduce taxes for Tech startups from 25 percent to 10 percent is great news as this will really encourage tech startups in the country.”

Ravi Mahajan, Tax Partner, Ernst and Young India, however welcomes the budget proposals as he says, “This will definitely encourage India’s elevation in the IT/ITeS sector from a services based industry to product based industry.”

Jaitley announced a cut in customs and excise duties as well as removal of Special Additional Duty(SAD) to reduce the local manufacturing cost in several sectors including IT and to address the problem of CENVAT credit accumulation.

The finance minister has proposed to reduce the rates of basic customs duty on certain inputs, raw materials, intermediates and components (in all 22 items) so as to minimize the impact of duty inversion and reduce the manufacturing cost in several sectors. Some other changes have also been proposed by him to address the problem of CENVAT credit accumulation due to the levy of SAD.

Basic customs duty is removed on certain raw materials used in telecommunication grade optical fiber cables, LCD/LED TV panels, etc.

The budget also proposes to fully exempt all goods, except populated printed circuit boards for use in manufacture of ITA bound items from SAD and reduce the SAD on imports of certain other inputs and raw materials. For example, SAD is removed for inputs for use in the manufacture of LED driver and MCPCB for LED lights, fixture and LED lamps.

Excise duty is restructured on certain goods such as tablet computers from 12 percent to 2 percent, wafers for use in the manufacture of integrated circuit (IC) modules for smart cards from 12 percent to 6 percent, inputs for use in the manufacture of LED lamps from 12 percent to 6 percent, and removed for specified raw materials for use in the manufacture of pacemakers, solar water heater and system.

But what the Indian manufacturers are saying? Y Guru,Chairman and Managing Director, Celkon Mobiles who is not so gung ho about it, says, ”Reducing the CVD on certain goods in another area the industry is looking forward to, however more clarity is needed in terms of its implementation. Having said that; the budget missed considering the challenges faced by the telecom industry.”

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