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Home Guide to Startup Investing in India

The Impact of the 2023 Budget on the Indian Startup Ecosystem

Budget 2023 effect on Indian Startup Ecosystem

Tyke Editorial Team by Tyke Editorial Team
February 10, 2023
Reading Time: 2 mins read
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Indian Startup Ecosystem

The Impact of the 2023 Budget on the Indian Startup Ecosystem

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The 2023 Union Budget, overall, will boost the growth of the startup ecosystem in India. By 2022,  the DPIIT had recognised over 80,000 startups — a number bound to grow rapidly. Below is a summary of provisions contained in the Budget 2023 that will impact the startup landscape in India:

1. The deadline for startups to claim 100% exemption from income tax has been extended to March 31st, 2024 from March 31st, 2023, providing ongoing relief for profitable startups.

2. The carryforward period for accumulated losses by startups in India has increased from seven years from the date of incorporation to ten years. Therefore, startups can now carry forward their accumulated losses for a longer period of time, potentially allowing them more time to recover from losses and achieve profitability; this could also attract profitable businesses to acquire startups with accumulated losses.

3.  An Agriculture Accelerator Fund has been announced to support young entrepreneurs setting up agri-startups in rural areas. This would propel startups in the agriculture sector in India to innovate, which would immensely advance the primary sector of our economy.

4. Three Centres of Excellence (COE) for R&D in AI will be set up in select education institutions. Multiple education institutions across the country have supported the growth of the startup ecosystem in the form of funding and incubation. These COEs would unlock further growth of startups in the AI space.

5. The Finance Minister announced the Pradhan Mantri Kaushal Vikas Yojana 4.0 — aimed at upskilling lakhs of youth within three years on Industry 4.0 domains such as coding, AI, robotics, mechatronics, IOT, 3D printing, drones as well as certain soft skills. This could establish talent supply for the startup sector for the near future.

6. The budget announced the Unified Skill India Digital Platform, which aims to provide demand-based formal training to individuals, in collaboration with employers. The platform also aims to make it easier for individuals to access entrepreneurship schemes. The objective of the platform is to skill and upskill the workforce to meet the demands of the industry and promote entrepreneurship.

7.  The budget has reduced 39,000 compliances and decriminalized 3,400 legal provisions to improve the ease of business in India. While certain challenges faced by startups may persist, this is a step in the right direction towards improving the business environment in India.

However, the industry has not reacted favourably to the Budget’s proposal to extend Section 56(2)(viib) provisions, particularly the contentious “Angel Tax,” to Non-Residents. Startups that receive financing over the fair market value of their shares on the prevailing date are subject to the angel tax. Startups, however, that have been approved by the DPIIT and have paid-up share capital and share premiums of no more than Rs. 25 crores are exempt from paying the tax.

What are your thoughts on the 2023 Budget? If you’d like to share your thoughts and engage with the community, our Discord Channel (https://discord.gg/gwJWXjPe7e) would be the perfect place for you.

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Tyke Editorial Team

Tyke Editorial Team

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