Budget 2020: As India sees slowest economic growth in 11 years, here's what startups need to flourish

Sunny Sen and Pratik Bhakta

The biggest challenge facing the Modi government is the economy, expected to grow at its slowest in 11 years at 5 percent this financial year, and the falling consumer spending.

The startup space, like the others sections of the economy, is feeling the heat, too. Last year, the government gave the startup community more clarity on angel tax but like in the first term, NDA 2.0, too, is not paying enough attention to startups.

Soon after he took over as the prime minister in 2014, Narendra Modi launched Startup India and Funds of Fund for the newest sector of the economy but that is not enough. If India has to be a $5-trillion economy by 2024, startups have to flourish.

The government has to find ways so that consumers spend more using the internet, starting business gets easier and ESOP taxation is streamlines, among others.

Here is a list of what startups want from Budget 2020:

Revision of ESOP taxation policy

The employee stock ownership plan (ESOP) is a major means of attracting talent for startups. Startup founders and venture capitalists say they want some tax relaxation for ESOP holders. The tax should kick in when ESOPs are sold or encashed, and not at the time of allocation or investment.

GST relief for digital payments

Startups hope that the government will create a fund to subsidise payment companies for loss of revenue arising out of its zero merchant discount rate (MDR) directive. The digital payments industry has been pushing for tax breaks for a long time. While the service tax was 15 percent under the GST regime, the revised taxation policy has raised it to 18 percent.

Budgetary support for digital payments

Payment industry executives told Tech2 that the zero MDR directive should have been eased through a five-year period with budgetary support. The reimbursement programme for banks for card transaction below Rs 2,000 should be brought back.

Long-term capital gains relaxation on angel investments

The government has been looking at ways to exempt investors from capital gains during exit, hoping to attract more investors for startups. Investors await clarity on capital gains tax.

Ease of doing business

As consumer spending on the internet continues to be low, startups want better policies so that home-grown companies can build a consumer base outside the country as well. This includes exemption in export duty and special subsidies for Make in India for products and services.

Renew 'Digital India'

The government's Digital India campaign should be more pervasive, with the use of faster and efficient technologies to include an array of services and goods industry into the campaign.

Tax rate cuts

To boost market sentiment, startups feel a further reduction in income tax will help. Also, direct tax relief will help boost consumers' spending power. Further reduction in corporate tax€" of up to 22 percent€" will also help.

Also See: Budget 2020: Policy relaxations and incentives will whip up investors’ appetite, help govt fast-track to clock $5 trillion mark

Budget 2020: From simplification of tax-related compliances to easing credit facilities, startups hope for a 'power' package from Nirmala Sitharaman

Budget 2020: Govt should revisit spectrum charges, other levies; offer amnesty schemes to telecom firms to enable 5G launch

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