Content

What startups were expecting from the budget ................................................................... 2

Sriram Ramaswamy, Partner Tax & Regulatory at PwC
Budget 2017: Decoding the impact on startups ................................................................... 4
Alok Patnia, Founder - Taxmantra
Key themes across sectors ....................................................................................................... 7
Team YS

The hits and misses according to the startup ecosystem ................................................... 10

Aparajita Choudhury, Correspondent, YourStory

Is there any substance behind the sheen for fintech? ........................................................ 13

Tarush Bhalla, Correspondent, YourStory

Keep working (for) capital ..................................................................................................... 16

Anurag Jain, Co-founder & COO at KredX

References ............................................................................................................................... 19

E-BOOK: DECODING BUDGET 2017 FOR STARTUPS 2

 What startups were expecting from the budget
Sriram Ramaswamy
Prime Minister Narendra Modi in 2016
launched the Startup India campaign to
boost entrepreneurship in the country.
What followed was a series of action plans,
tax breaks, simplified compliances, and
state sops targeted at making India a
Startup Hub.
The government laid out a roadmap, which
was also followed up by the regulators
with a series of circulars and guidelines.
The wishlist of the sector, however, called
for more attention from the government
to accelerate the overall pace of reforms.
Startup registration
The Startup Hub and the mobile portal
launched by the government made it easy
for startups to apply for registration at the
click of a button. Presently, only specified
categories of businesses are eligible to
register as startups. To promote
entrepreneurship, the industry felt it was
necessary to expand the benefits to all
startups, without restricting them to only
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
new products or services, to foster healthy
competition.
Need for capital
While the buzz around startups grows, the
darker side of startups shutting shop is
also very real. One factor which usually
hampers growth is the lack of sufficient
capital. Recognising this, the government
put in place initiatives such as Fund of
Funds, Credit Guarantee Funds, and tax
exemptions, albeit with some riders. With
private capital still remaining an attractive
Budget 2016 was a bonanza for
startups, while Budget 2017 is a
bonanza for the digital economy.
- Vijay Shekhar Sharma,
Founder & CEO, Paytm
2
 and easy source, the startup sector wanted Alternate Tax (18.5 percent tax on book
liberalisation of regulatory reforms that profits, payable if higher than regular tax)
could go a long way in correcting the was a recurring demand. With GST close to
balance. becoming a reality, startups wanted to be
sufficiently protected through
Tax exemptions exemptions/deferments, avoiding any
abrupt disruption to the ecosystem.
As several startups in varied sectors
mushroom across the country, Digitisation
streamlining tax laws becomes very critical.
With demonetisation, one cannot deny
Earlier tax laws restricted the ability to
that fintech companies emerged as the
carry forward losses in case of a change in
silent gainers. Payment wallets, online
majority shareholding. Startups wanted
gateways, and several other fintech
this rule dropped as it would be extremely
solutions are being conceived daily. More
beneficial in helping them raise funds. Also
attention to this sector and e-commerce
on the wishlist was extending the carry
would provide a stable, favourable,
forward period of losses (currently eight
predictable, and investment-friendly
years).
climate.
As with any other tax holiday regime, the
call for exemption from Minimum

Sriram Ramaswamy is Partner Tax & Regulatory at PwC. The views and opinions expressed
in this article are those of the author and do not necessarily reflect the views of YourStory.

E-BOOK: DECODING BUDGET 2017 FOR STARTUPS 3

 Budget 2017: Decoding the impact on startups
Alok Patnia
In the backdrop of demonetisation, with
polls in five Indian states and a lot of
expectations from across the globe, the
Union Budget presented by Finance
Minister Arun Jaitley turned out to be in
line with the governments vision and
policies so far. It had several
announcements impacting startups
directly and indirectly. Analyses of such
provisions are as follows:
Amendments having direct
impact
1. Reduced corporate income tax
The government decided to reduce the
corporate income tax from FY 2017-18
onward to 25 percent from the current rate
of 30 percent for all companies that had a
turnover or gross receipts up to Rs 50
crore in FY 2015-16. This would mean that
small and medium scale companies with a
turnover of up to Rs 50 crore till FY 2015-
16 and new companies can claim this
benefit. However, this benefit is available
only to domestic companies. Foreign
companies and other forms of businesses
like LLP and partnership firms are not
eligible for this reduced rate.
2. Extension of time period for availing
income tax benefits under Startup India
Initiative
Startups recognised under the Startup
India policy can now claim tax benefits in
three out of the first seven years under
Section 80-IAC of the Income-tax Act,
1961. Earlier, it was three out of the first
five years. The government had received
several representations that startups rarely
earn profits in the first few years of their
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
operations. This will encourage more
startups to register under the
governments Startup India initiative.
3. Relief for small traders and businesses
opting for presumptive taxation and
having non-cash receipts
As announced earlier, the government
reduced the requirement u/s 44AD for
declaring a minimum presumptive tax
profit margin to 6 percent from the
existing 8 percent in cases of non-cash
receipts and turnover. Also, the threshold
limit for maintenance of books of accounts
for individuals and professionals has been
increased to Rs 2.5 lakh from Rs 1.2 lakh
and the limit for tax audit u/s 44AB has
also been increased to Rs 2 crore from the
current limit of Rs 1 crore for the
individual/HUFs opting for presumptive
taxation u/s 44AD.
4. Carrying forward of losses for
companies whose shareholding has
changed considerably
Section 79 of the Income Tax Act, 1961
allows a company to carry forward losses
for seven years and then set off against
profit of future years. However, this was
not allowed if 51 percent of a companys
shareholding didnt remain intact in the
year of loss and in the year of set-off. With
the startup ecosystems changing
environment and more investments and
buyouts happening, the government has
allowed these losses to be carried forward
and set off even if majority shareholding
has changed hands. However, this benefit
is available only for startups recognised
under the Startup India policy and eligible
to claim benefits of Section 80-IAC (NIL
4

"As a part of the startup ecosystem, we
expected a little more out of the budget
particularly in terms of tax relief and
GST. The budget does not provide any
clarity on when GST will be
implemented. Moreover, some of the
other measures on simplification of
taxes, increase in tax holiday period and
easier access to unsecured loans have
not been addressed in this budget.
- Harshvardhan Lunia, Co-
founder & CEO,
Lendingkart Group
-
income tax in three out of the first seven
years).
5. Extension of time limit for use of MAT
credit
The existing tax laws have a provision of
MAT (minimum alternate tax) at
approximately 19 percent on book profits
of all the companies, who may otherwise
be not be paying corporate income tax
due to deductions or exemptions available
under the Income Tax Act. However, credit
of MAT was available for 10 years to be set
off against normal income tax liability,
when the taxes under normal income tax
provisions exceeded MAT.
The government has extended the time
period for availing MAT credit to 15 years
from the current limit of 10 years. This will
benefit startups claiming tax exemptions
u/s 80-IAC but paying MAT and shall also
benefit the companies who have huge
MAT credit lying unused.
6. No capital gains on conversion of
preference shares to equity shares
Earlier, the conversion of preference shares
into equity shares was considered a
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
transfer and thus attracted capital gains
tax. The government has exempted
conversion of shares from preference to
equity and otherwise from the definition of
transfer and given a big relief to startup
investors who prefer buying convertible
preference shares.
7. Penalty for late filing of income tax
returns
September 30 is the due date for income
tax return filing for companies and
assessees covered under tax audit. For
others, the due date is July 31. Earlier,
there was no or optional penalty for delay
in filing returns up to a certain date.
However, now the government has
prescribed a late filing fee of Rs 5,000 for
delay up to December 31 and Rs 10,000
for further delay. However, the penalty has
been limited to Rs 1,000 in cases where
the taxable income is up to Rs 5 lakh.
Amendments to boost digital
economy
1. Cash payment for expense or
acquisition of asset of Rs 10,000 or more
not allowed
Earlier, cash payment in a day of Rs 20,000
or more was not allowed as an expense in
the books of the company. Now the limit
u/s 40A has been reduced to Rs 10,000.
Over and above this, the provision now
also covers capital expenditure. If payment
against a capital expense of Rs 10,000 or
more is done in violation of Section 43, the
cost of such an asset would not get added
to the total asset value, which would mean
that no depreciation can be claimed on
such assets. Also, the cash value would not
form part of the cost of such asset, which
will also increase the capital gains amount
in case of any future sale.
5
 2. Cash receipt of Rs 3,00,000 or more
would attract 100 percent penalty
A new Section 269ST has been proposed
to bar cash receipt of Rs 3 lakh or more in
a single day, or against a single bill or
against a single occasion or event,
attracting a penalty of the same amount.
Amendments towards ease of
doing business
1. Tax on indirect transfer in case of
certain foreign portfolio investors
Section 9 of the Act deals with cases of
income which are deemed to accrue or
arise in India, directly or indirectly, and are
taxable in India. The said clause provides
that all income accruing or arising,
whether directly or indirectly, through or
from any business connection in India, or
through or from any property in India, or
through or from any asset or source of
income in India, or through the transfer of
a capital asset situate in India, shall be
deemed to accrue or arise in India.
The Finance Act, 2012 inserted certain
clarificatory amendments in the provisions
of Section 9. The amendments, inter-alia,
included insertion of Explanation 5 in
Section 9(1)(i) w.e.f. April 1, 1962 which
clarified that an asset or capital asset,
being any share or interest in a company
or entity registered or incorporated
outside India shall be deemed to be
situated in India, if the share or interest
derives, directly or indirectly, its value
substantially from the assets located in
India.
Concerns were raised by stakeholders that
the provisions result in multiple taxations.
In order to address these concerns, there is
a proposal to amend the said section so as
Alok Patnia is the founder of Taxmantra.com. The views and opinions expressed in this article
are those of the author and do not necessarily reflect the views of YourStory.
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
to clarify that Explanation 5 shall not apply
to any asset or capital asset mentioned
therein being investment held by non-
resident, directly or indirectly, in a foreign
institutional investor, as referred to in
clause (a) of the Explanation to section
115AD, and registered as Category-I or
Category II foreign portfolio investor under
the Securities and Exchange Board of India
(Foreign Portfolio Investors) Regulations,
2014 made under the Securities and
Exchange Board of India Act, 1992, as
these entities are regulated and broad
based. The proposed amendment is
clarificatory in nature.
This amendment will take effect
retrospectively from April 1, 2012, and will,
accordingly, apply in relation to
assessment year 201213 and subsequent
years.
2. Provisions relating to domestic transfer
pricing have also been relaxed, so as to
cover only those companies which who are
claiming profit-linked deductions or
exemptions.
3. FIPB or the Foreign Investment
Promotion Board has been done away
with, leading to more emphasis on foreign
direct investment (FDI) through the
automatic route
Taxmantras take on the Budget
To us, this Budget seems to be a good
one, which has addressed quite a few
concerns of foreign investors and the
Indian small and medium enterprise
sector. The reduction of corporate tax
rates and overall rationalisation seem to be
good. However, we feel that more could
be done. For instance, the problem of
startup tax on domestic angel investors
still persists.
6
 Budget 2017: Key themes across sectors
Team YS
While presenting the budget, the FM said
the government's three-point agenda for
the next year was Transform, Energise, and
Clean India, and in keeping with those
goals, the budget had zeroed in on some
key themes:
1) Digital economy for transparency
Jaitley said that a cash economy enables
people to avoid taxes. He has capped cash
transactions for individuals at Rs3 lakh, and
maximum amount of cash donation to
political parties from one individual at
Rs2,000.
A payment regulatory board will be set up
in RBI to regulate electronic payments,
replacing the Board for Regulation and
Supervision in Payments and Settlements
System.
2) Rural Population: Employment and
infrastructure for rural population
Rs.3 lakh crore is spent in rural areas every
year aiming for this. MGNREGA will be
strengthened for the sake of every rural
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
household. Besides improving farm
productivity, 10 lakh composite pits will be
achieved by March 2017. From Rs.38500
crore in the last fiscal, allocation for
MGNREGA has been raised to Rs.48000
crore in 2017-18, effectively making it the
highest ever.
3) Youth: re-energising through
education and skill development
Annual learning outcome in schools will be
introduced, along with reforms in
University Grants Commission, and
colleges and institutions will have more
autonomy.
An innovation fund for secondary
education to be set up to encourage local
innovation and ensure universal access,
gender parity and quality improvement.
Pradhan Mantri Kaushal Kendras will be
extended to 600 districts; 100 international
skill centres will be opened to help people
get jobs abroad. There is a proposal to
launch a skill acquisition and knowledge
awareness for livelihood promotion
7
 programme at a cost of Rs 4,000 crore and
provide market-relevant training to 3.5
crore youth.
4) Agriculture: doubling of farmers
income in five years
Credit target for the next fiscal has been
fixed at Rs 10 lakh crore. Jaitley has
stressed on new measures to enable
higher production and productivity for the
farmer, and help them deal with post-
harvest challenges. An additional incentive
of 3 per cent is provided to farmers for
prompt repayment of loans within due
date, making an effective interest rate for
them at 4 per cent.
6) Infrastructure: To improve the
efficiency, productivity and for quality of
life
Trade Infrastructure for Export Scheme
(TIES) will be launched in 2017-18. For
transportation sector as a whole, including
rail, roads, shipping, provision of
Rs.2,41,387 crores has been made in 2017-
18. Affordable housing to be given
infrastructure status. By the end of 2017-
18, high speed broadband connectivity on
optical fibre will be available in more than
1,50,000 gram panchayats, under
BharatNet.
7) Poor & Underprivileged: Affordable
Housing for the under-privileged
The Central government is planning to
build one crore new houses for those
living in kachha houses by 2019. Jaitley
stressed that villages free of open
defecation will be given priority for piped
water supply.
8) Healthcare: Better access for everyone
The government aims to eliminate, kala
azar and filariasis by 2017, leprosy by 2018,
measles by 2020 and tuberculosis by 2025.
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
Two new AIIMS Hospitals will be set up in
Jharkhand and Gujarat. Seeing a need for
more trained doctors, especially specialists,
in the rural areas, there is a proposal to
accommodate additional 5,000
postgraduate medical seats per annum.
Also, there is a proposal to amend the
Drugs and Cosmetics Rules to ensure
availability of drugs at reasonable prices,
and also on making medical devices
cheaper. Pensioners will be issues
Aadhaar-based smart cards with health
details as a step towards a universal health
stack for India.
9) Digital economy: Pushing for more
adoption
The BHIM app: The government will
launch two new schemes to promote the
usage of BHIM, the UPI-based Bharat
Interface for Money (BHIM) app a
Referral Bonus Scheme for individuals and
a Cashback Scheme for merchants.
Aadhaar Pay: The FM promised that a
merchant version of the Aadhaar Enabled
Payment System would be launched
shortly.
Pushing for digital: The Budget also stated
that a proposal to mandate all government
receipts through digital means, beyond a
prescribed limit, is under consideration.
Aadhaar-based Point of Sale (PoS)
activation: The FM stated that banks have
targeted the introduction of an additional
10 lakh new POS terminals by March 2017.
They will be encouraged to introduce 20
lakh Aadhaar-based PoS terminals by
September 2017.
New Payments Regulatory Board: The FM
also proposed to create a Payments
Regulatory Board in the Reserve Bank of
India by replacing the existing Board for
Regulation and Supervision of Payment
and Settlement Systems.
8
 A new cyber-security entity: The Finance
Minister also hinted at a new cyber-
security entity being established to work
closely with the financial regulators and
institutions.
10) Financial sector: Growth and stability
through stronger institutions
An expert committee will be constituted to
study and promote creation of an
operational and legal framework to
integrate spot market and derivatives
market in the agricultural sector, for
commodities trading. e- NAM will be an
integral part of the framework. A
Computer Emergency Response Team for
our Financial Sector (CERT-Fin) will be
established. Foreign Investment Promotion
Board to be abolished in 2017-18.4
11) Public Service: Effective governance
and efficiency of service delivery
Government e-marketplace is now
functional for procurement of goods and
services. Head Post Offices will issue
Passports soon. A Centralised Defence
Travel System has been developed
through which soldiers and officers can
book travel tickets. Web-based interactive
Pension Disbursement System for Defence
Pensioners will also be established.
12) Prudent fiscal management for
optimal utilisation of resources
Jaitley has now stepped up allocation for
Capital expenditure by 25.4% over the
previous year. Total resources being
transferred to the States and the Union
Territories with Legislatures is Rs.4.11 lakh
crores, against Rs.3.60 lakh crores in 2016-
17. For the first time, a consolidated
Outcome Budget, covering all Ministries
and Departments, is being laid along with
the other Budget documents.
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
"The budget is progressive and forward
looking with a clear focus on Digital
India and skilling. These are welcome
moves in the interest of India's unique
and growing needs.
- Bhavish Aggarwal, Co-founder
& CEO, Ola
13) Tax administration
For those with annual income between
Rs.2.5 lakh and Rs.5 lakh, annual income
tax has been reduced from 10% to 5%, and
it can be done in a single page form for
filing returns. There will be a 10%
surcharge for tax payers whose income is
between Rs50 lakh and Rs1 crore. During
this fiscal, only 1.7 crore people out of the
4.2 crore salaried people have filed income
tax returns.
14) Women and child development
The budgetary allocation for welfare of
women and children under various
ministries has been increased to Rs
1,84,632 crore from Rs 1,56,000 crore last
year.
15) Transportation and logistics
Logistics companies will be allowed to use
the railways for end-to-end solutions. The
government wants to encourage the
movement of perishable goods such as for
fruits and vegetables across the country in
special containers on rail at reduced rates.
A startup will manage the solution end-to-
end. Under the Bharat Net scheme, optic
fiber will be added along the railway
tracks, enabling easier tracking.
9
 Budget 2017: The hits and misses according to the
startup ecosystem
Aparajita Choudhury

Since 2014, the startup community has
been showered with goodies in each of the
Union Budgets. Beginning with a Rs 10,000
startup fund in the 2014 Budget, Finance
Minister Arun Jaitley followed it up with a
Rs 1,000 crore fund for tech startups and
entrepreneurs in the 2015 budget and a
100 per cent tax exemption for startups for
the first three years of existence in 2016.
Equally generous this year as well, the
Union Budget 2017 encourages firms to
migrate to the company format and makes
MSMEs more viable with the
announcement of tax exemption: The
income tax on smaller companies with an
annual turnover of up to Rs 50 crore has
been reduced to 25 percent.
Last year, the government granted income
tax exemptions to startups with certain
conditions. This years budget has proved
to be a boon for companies incorporated
after 31 March 2016. During the first seven
years of their existence, these companies
can now avail tax holidays for three years.
The profit-linked deductions available to
startups for three years out of five years
earlier has been changed to three years
out of seven years.
Since very few startups turn profitable in
the first five years of their existence, the
startup fraternity has whole-heartedly
welcomed the extension of tax breaks to
startups for seven years.
According to R. Narayan, Founder and
CEO, Power2SME, "The 5 percent
reduction in the income tax rate to 25
percent (from the existing 30 percent) for
smaller companies with a turnover of Rs 50
crore will make a huge difference to the
revenues of MSMEs. Besides, shifting from
proprietorship registrations to private
limited/ LLP registered firms will help
create a more favourable working
environment for MSME players."

E-BOOK: DECODING BUDGET 2017 FOR STARTUPS 10


"On the aviation front - Zero reform,
some mild relief in fuel costs. Again kills
the industry and goes to show why you
have no startups coming up in
aviation!
- Kanika Tekriwal, Co-founder &
CEO of JetSetGo
He further emphasised that the
governments decision to double the
lending target of banks under the MUDRA
Yojna to Rs 2.44 lakh crore will serve to
further boost the financial morale of the
MSME sector.
However, according to Bharati Jacob,
Managing Partner, Seedfund, although
the alteration in tax rebate for startups
from three years out of five years to now
seven years, comes as a relief, it doesnt do
much as startups in their initial years from
inception hardly make big profits.
Regarding external borrowing, she says
startups continue to find it difficult to raise
external money unless VC money comes in
as debt.
The minimum alternative tax (MAT) is
currently levied only on advanced tax,
thanks to the strong demand for its
abolition in the past. However, the plan for
phasing out exemptions will kick in from
April 1. Gains to the exchequer from the
phase out of such exemptions will start
accruing only after 7-10 years, after all
those availing exemptions at present
complete their period of availment.
Therefore it's not possible to remove MAT
at present. However, in order to allow
companies to use MAT credit in future,
carry forward of MAT will be allowed for a
period of 15 years instead of 10 years at
present.
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
Profit-linked deduction for startups being
extended to three years out of seven is a
good move. We were hoping for MAT to
go away but its extension upto 15 years is
still satisfactory, says Saurabh Srivastava,
Co-founder at Indian Angel Network.
Saurabh added that the ability to carry
forward losses if the founder remains
involved is a very positive step as is the tax
reduction for companies with revenues
below Rs 50 crore. However, it would have
been great if capital gains for startups was
aligned with those for listed companies,
and if there was some announcement
pertaining to Section 56 as it is regressive
and prejudicial and impedes the growth of
innovative startups and job creation.
In the wake of the tumultuous effects of
demonetisation, the budget this year
demonstrated a consolidated focus on
every sector. Tax breaks for small and
medium enterprises will also complement
the Make in India initiative.
In a bid to transform India into a global
manufacturing hub, the government has
increased the allocation for incentives
under schemes like M-SIPS and EDF to Rs
745 crore for electronic manufacturers in
India. India has now become the 6th
largest manufacturing hub worldwide.
Archit Gupta, CEO and Founder, ClearTax,
says, "The government has proposed
abolishing FIPB. This is a significant move
for the startup ecosystem. The govt has
proposed an automatic FDI approval route.
This is also a move towards ease of
business - as obtaining FIPB approvals
involved time and effort. This is an
excellent move for removal of lengthy and
time consuming approval processes. We
are awaiting further details.
11

"The Union Budget 2017 has taken a
step towards making healthcare not just
affordable but structurally robust as
well. However, technology could prove
to be a disruptive factor in assuring that
the healthcare reaches out to those who
have been hitherto isolated from it. But,
unfortunately the budget has completely
overlooked the health-tech startups
which are changing the landscape of
healthcare industry in India. With a
focus on transparency and reach, they
have been deprived of an opportunity to
make a dent in the healthcare
ecosystem.
- Ravi Virmani, MD & Founder,
CrediHealth
Aparajita Choudhury is a correspondent with YourStory.
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
Vikram Gupta, Founder and Managing
Partner, IvyCap Ventures, says, "The key
positive aspect I see for startups and SMEs
with a turnover less that Rs 50 crore is that
the tax rate has been reduced from 30
percent to 25 percent, which should come
as a big relief. Most of the startups we
invest in have revenues of less than Rs 50
crore.
Girish Vanvari, Head of Tax, KPMG in
India, says, Budget 2017 sticks to fiscal
prudence with a fiscal deficit of 3.2 percent
whilst balancing enhanced spending in
several socio-economic schemes and
different aspects of economic development.
The thrust of the budget is to enhance the
tax base and move towards digitisation
through several amendments in the Act. No
change in capital gains tax regime for listed
stocks and clarification on non-applicability
of indirect transfer rules to FPIs and AIFs
will be a big relief to the investors and
could trigger an immediate rally on the
stock markets.
12
 Budget 2017: Is there any substance behind the
sheen for fintech?
Tarush Bhalla
The entire ecosystem may have cheered
for initiatives like Aadhaar Pay and the
rolling out of more PoS devices, as well as
new digital and cyber-security initiatives,
but there was still a feeling of some things
being left out.
While speaking to YourStory, Abhijit Bose,
Co-founder and CEO of Point of Sale
(PoS) and payments services company
Ezetap, said, To be honest, there wasnt
anything surprising. A lot of activities that
were mentioned in the budget have already
being going on since November 8th, post-
demonetisation. However, from the
industry, it was heartening to see that all
the things we were working on were
brought in.
Commenting on the removing of taxes on
PoS machines, he said, The tax removals
will bring down the cost for suppliers,
which can be passed on to merchants now.
But thats not a driver, as the decision itself
wouldnt accelerate the deployment of PoS
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
machines, since there is already an active
need for this infrastructure.
When asked whether the governments
launch of consumer payment app BHIM
(Bharat Interface for Money) jeopardises
the private players, he said, There have
been private entities that have done better
than government-owned PSUs and vice
versa. As long as the government acts as a
catalyst and breaks walls, its doing the
right thing. The government can do it
(BHIM) at a better scale, but the market
will always decide. And the consumers will
also choose the better value.
Varun Rathi, COO and Co-founder of
Bengaluru-based expense management
solution Happay, also said, The
government is working more like a startup
and is quick to introduce incentives and
continual iterations to ensure mass
adoption, which is much needed for the
large population sitting on the fence.
13

"The launch of AadhaarPay in the near
future is further going to serve the
greater cause of financial inclusion. We
also appreciate the announcement of
the proposal to exempt taxes on POS
machines, MicroATMs and Iris scanners.
All these changes are set to promote the
digital economy.
- B. Amrish Rau, CEO, PayU India
What was impressive
The players in the lending system seemed
to be looking at formalisation to be a
positive impact in disseminating credit.
Sashank Rishyasringa, Co-founder and
Managing Director, Capital Float, believes
that incentivising cashless transactions at
fuel stations, hospitals and railways, rolling
out one million PoS terminals by March,
and proposing a payment regulatory body
to the RBI will help create a robust
architecture for digital transactions as well
as deepen the digital footprint.
For Harshvardhan Lunia, CEO and Co-
Founder, Lendingkart Group, the
incentives dont just stop at the digital
initiatives. He said, SMEs in India are
credit-starved. In this regard, the increase in
the limit of the Pradhan Mantri Mudra
Yojana (PMMY) for banks and NBFCs to Rs
1.80 lakh crore is a positive step towards
bridging the financing gap existing in the
SME segment.
Additionally, he believes that the
presumptive taxation scheme turnover
limit being extended to Rs 2 crore will
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
bring relief to a large number of assessees
in the MSMEcategory.
Bipin Preet Singh, Founder and CEO,
MobiKwik, felt that under digitisation,
startups could have been represented
better. I commend the Budgets
recommendation on upgrading digital
infrastructure to support cashless
transactions in rural and semi-urban areas.
However, we feel that the government
should have also considered promoting
startups in the digital payments and digital
security areas. Secure digital transactions
are the only way to sustain India's habit of
cashless payments.
More misses than hits?
Bala Parthasarathy, CEO and Co-founder,
MoneyTap, thought that the Budget
wasnt anything earth-shattering.
According to him, the spotlight on setting
up a cyber-security emergency response
team to work with financial regulators was
a good move. He said, There is bound to
be hacking, and its not a question of 'if' but
'when'.
But he goes on to say that the above
wasnt completely addressed. He
highlights the following misses:
No mention of the data privacy law:
Bala said that all apps (financial or
otherwise) get the permission to read
your SMSs and suck in most of your
data, making the infrastructure lose
out with no laws. He calls out the need
for having a world class data privacy
law, which the government might need
to give some teeth and pass in
Parliament.
Nothing related to education of
digital payments: This, Bala highlights,
is the second major miss from the
Budget, especially at a time when there
is a sudden inflow of new users on the
14
 digital payments infrastructure, who more in continuation, formalising things
seem to be lost otherwise. that were done during demonetisation in
an ad hoc manner. Although we were
Extend the cashback and referral
expecting an even smaller cash ban limit
programme to all players: Under the
(than three lakhs), its understandable that
BHIM app, the Budget did announce
the infrastructure for digital payments isnt
the introduction of a cashback and
completely there yet. So to speak, there
referral programme. However, the
hasnt been anything draconian
message could be tweaked to mention
introduced.
that it was for any UPI app, which puts
the government in a spot where they Sanjay believed that this year, for the
might be promoting BHIM over other Budget, it was more about investing on the
players, which might not have been foundation, so that the results can be
the case ultimately. reaped after 24 months.
Sanjay Swamy from Prime Venture
Partners added, The budget seems to be

Tarush Bhalla is a correspondent with YourStory.

E-BOOK: DECODING BUDGET 2017 FOR STARTUPS 15

 Keep working (for) capital
Anurag Jain
SMEs form the backbone of India,
contributing to about 8 percent of the
GDP, 45 percent of the total
manufacturing output, and employing
close to 40 percent of the countrys
workforce. In spite of this, they have been
riddled with a number of critical issues
such as inadequate infrastructure, lack of
access to financing options, unavailability
of skilled resources, and risk perception.
India is ranked 130th out of 190 countries
in the ease of doing business index
released by the World Bank.
Furthermore, things have never been so
difficult for SMEs they are suffering
from the double whammy of a cash crunch
and demand squeeze in the wake of
demonetisation. Financial institutions have
become even more reluctant to extend
credit to these businesses. The
demonetisation drive witnessed a 35
percent layoff with a revenue dip of 50
percent in the month after November 8,
2016.
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
However, the PMs speech on December
31, 2016, did mention some positives:
Enhancement of limit under the credit
guarantee scheme for small businesses
(CGTMSE) from Rs 1 crore to Rs 2 crore
and inclusion of NBFCs in the same.
Enhancement of cash credit limit for
small businesses from 20 to 25 percent
of the turnover.
Additional small tax benefits to
businesses based on their usage of the
digital payments infrastructure.
Actually, if you look at the CGTMSE
scheme carefully, it has given guarantees
many times but its available corpus and
claim settlement are plagued by inordinate
delays, so increasing the limit would hardly
make things better for small businesses.
Even enhancement of the maximum cash
credit limit is of little use as SMEs are the
least preferred lot for financial institutions.
Therefore, benefits announced by the
government appear to be superficial.
16

It is encouraging to see that the
government is moving forward on
payment system regulation. We hope
the setting up of a separate payment
regulatory board will help in improving
interoperability and innovation. The
Finance Minister also announced digital
infra related measures and we hope all
these steps will help more and more
people joining the digital ecosystem.
- Ramki Gaddipati, Co-founder &
CTO of Zeta
Now, lets look at what has been done for
the SMEs in the current Budget:
Reduced income tax: Proposal to
reduce the income tax from 30 percent
to 25 percent for businesses with
turnover of up to Rs 50 crore. This is a
welcome step that will benefit around
96 percent of the small businesses in
India which, in turn, would give them
some respite in competing with large
players.
Proposal to amend NI Act: The
government is considering an option
to amend the Negotiable Instruments
Act to provide relief to receivers of dud
cheques and expedite the settlement
process. If implemented, this will
improve the collections process and
might act as a deterrent for the
borrowers.
Reduced tax liability of banks with
regard to non-performing assets
(NPAs): Increase in capital set aside for
NPAs that can be deducted from the
gross income of the bank from 7.5
percent to 8 percent. This should
benefit the financial institutions and
E-BOOK: DECODING BUDGET 2017 FOR STARTUPS
might free some capital for more
disbursals.
Limit on cash transactions/
introduction of 10 lakh POS machines:
No cash transactions above Rs 3 lakh
and 10 lakh additional point of sale
(PoS) machines will go a long way in
reducing SMEs dependence on cash
and will set the right precedent for a
cashless future.
Greenfield enterprises: Priority to be
given to tribals, Dalits, and women to
set up greenfield enterprises, which is
a good step to give the countrys
underprivileged equal opportunities.
Surplus liquidity: The enhanced
liquidity created by demonetisation in
the banking system will lower
borrowing cost and increase access to
credit for all SMEs.
MUDRAs lending target doubled
from Rs 1.22 lakh crore in 2015-16 to
Rs 2.44 lakh crore in 2017-18. This will
enhance growth in the lower rung of
the business strata and reduce
unemployment.
Tax exemption for manufacturers of
POS machines: Mini POS, micro POS,
and fingerprint and iris systems for
cashless transactions to make digital
payments easy and manufacturers will
receive tax exemption.
Availability of skilled resources:
Allocation of Rs 4,000 crore for skill
acquisition programmes to increase
the availability of skilled resources for
the companies on ground and reduce
unemployment.
The year 2016 will be remembered as the
year of boldness and unprecedented
moves like demonetisation and passage of
the GST Bill by the Central government.
These two events alone will transmogrify
17
 the SME landscape in India and will Improvement in infrastructure for small
displace the cash-heavy economy to a manufacturing units in tier 2 and tier 3
more digital-savvy and compliant one. cities so that they can churn out cost-
effective products and compete with
To summarise, we laud the efforts of the
industry biggies.
government for moving from a blanket
entitlement towards targeted delivery and Post demonetisation, SMEs saw the
rigorously supporting the digital revolution biggest impact in their top line and
in this mammoth democracy famous for its bottom line but unlike bigger
on-ground heterogeneity. corporates, they can neither borrow at
a lower rate nor raise the prices of
However, there are some expectations that
their products. There should have been
have not been met:
some reforms to pass on the benefit of
Easing of capital availability for SMEs the windfall gain in deposits by the
either through tweaking the banks post demonetisation.
percentage of adjusted net bank credit
With such a heavy stake in the countrys
in priority sector lending or through
GDP, no substantial growth in the
some short-term reforms to provide
economy is possible unless the SME sector
quick fixes for loans to SMEs.
is strong.

Anurag Jain is co-founder and COO at KredX, an online bill discounting platform.

E-BOOK: DECODING BUDGET 2017 FOR STARTUPS 18

 References
This e-book contains excerpts from articles written by Sriram Ramaswamy, Alok Patnia,
Anurag Jain, and YourStory correspondents Tarush Bhalla, Aparajita Choudhury, Athira A
Nair, Sindhu Kashyap, Sharika Nair and Vishal Krishna. All content has been previously
published on YourStory.com.

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E-BOOK: DECODING BUDGET 2017 FOR STARTUPS 19