Incentives for R&D and innovation for start-ups, Industry assessments point to the auto sector as a source of assistance in chip development: Industry surveys

Incentivizing research and development and innovation centres, assistance for chip fabrication skills, and sops for electric cars have emerged as top priorities in the start-up sector and the automobile industry’s Budget expectations ahead of the Union Budget 2022. According to a Grant Thornton Bharat pre-budget survey, provision for relaxed regulations to attract tech start-ups for listing in India has emerged as a top demand of start-ups, with the pandemic acting as a catalyst for technology adoption and driving the need to understand how the technology sector can develop through Government supported incentives and upskilling. Increasing the focus on academic ecosystem reform for improved trained digital talent, access to financing, and a framework and laws for direct foreign listing for Indian IT businesses are just a few of the important areas of concentration.

According to Grant Thornton Bharat, the start-up business also anticipates that the Budget would focus on higher education curriculum reform and increased academia to produce a globally leading competent digital and IT workforce. TV Narendran, President of the CII, has stated in the industry wish list that because start-ups have emerged as a conduit for entrepreneurship and innovation, the government should consider lowering the percentage of long-term capital gains (LTCG) from 20% to 10% and eliminating the surcharge on investments made into start-ups by investment vehicles. The process of giving income tax refunds to start-ups should be quickened, and the tax on capital gains accruing on exit should be lowered, according to the CII, as a critical step in luring money into the sector.

“2021 saw the rise of 44 Indian unicorns. With many unicorns poised to go public over the next 5 years, the Union Budget 2022 should create a level playing field for domestic and foreign investors and simplify the overseas listing process,” says Rahul Goel, VP Finance, Moglix.

For working capital savings, Goel believes that startups want more clarity on the GST input tax credit methodology. The present levies on long-term capital gains (LTCG) and short-term capital gains (STCG) taxes should be rationalised in the Budget.

“It should consider extended tax exemptions for sunrise and essential categories like e-learning and packaging and ESOPs should be treated as LTCG for taxation, considering the holding period,” adds Goel.

According to another Grant Thornton Bharat poll on the automotive sector, there are growing expectations from the government to provide help in domestic chip-making capabilities and to focus on expanding India’s automotive research and development base in the Budget.

“Government support via Budget 2022 is critical given the disruptions that the sector is experiencing due to the pandemic as well as the advent of new technologies around electric mobility and regulatory changes,” says Saket Mehra, Partner and Auto Sector leader.