Union Budget 2019-20: Fintech firms want digital payments to be incentivised, push towards tech-led infra, tax relaxations

  • Fintech firms expect the government to usher in a new set of reforms in the upcoming full Budget for the current fiscal

  • Fintech firms expect the government to provide tax relief, funding access, and further push to digital economy

  • Finance Minister Nirmala Sitharaman will unveil the full budget 2019-20 on 5 July

Fintech firms expect the government to usher in a new set of reforms in the upcoming full Budget for the current fiscal and hope for tax relief, funding access, and further push to digital economy. It comes at a time when the consumption demand is not growing fast enough, investment is tapering and exports are falling. Finance Minister Nirmala Sitharaman will unveil the full budget 2019-20 on 5 July. The interim budget was presented on 1 February, as the general elections were due in April and May to form the new government.

Upasana Taku, Co-Founder, Mobikwik, mobile phone-based payment system and digital wallet

Initiatives like Digital India, Make in India have certainly put India on a digital innovation fast track. I expect the Union Budget 2019 to give a further thrust to digitalisation of services, especially in terms of investment in infrastructure, availability of capital, incentivising digital payments as well as forward-looking regulatory policies for fintech to experiment and succeed. Also, the benefits of the digital services value chain must percolate to the under-banked population, offering them affordable and accessible financial services like loans and investment products. Why? Because the people of Bharat want to save, transact, make and receive payments, access credit, and insure against vulnerabilities but the lack of affordable financial services often sets them on a road to failure and keeps them in a vicious cycle of dependency. Thus, the Budget should focus on promoting inclusive growth in the country by catering to the diverse financial needs of various segments of the society.

Bhavin Turakhia, CEO, Zeta-digital payments platform; Flock-messaging and collaboration tool

For the upcoming Budget, two key areas to focus on are technology and salaried population. An increased focus on giving better sops to build an infrastructure that can continue to empower individuals digitally will boost our economy. Also, with technological disruption being key for startups’ growth today, we would urge the government to encourage investments in technology hubs that will help strengthen technologies such as AI, ML, etc. The government must also work towards bringing in some respite to GST by reducing the tax slab for technology services and products, encouraging the early adopter market to flourish. For salaried employees, in the past few decades, we haven’t witnessed any increase in several allowances that are offered.

Rustom Irani, MD, Hitachi Payment Services

Notwithstanding the effort to make India a less-cash society, cash still holds prominence in all our day to day payments. In order to build a less-cash society, the government should build a mechanism where everyone in the country is empowered with regulatory, social, commercial and infrastructure framework that will help in last-mile access to financial and other primary services. The idea to create 1 lakh digital villages in the next five years in the interim Budget was one step towards creating such a framework. We expect that the upcoming Budget will have more emphasis on financial literacy, push towards creating technology-led infrastructure and additional distribution channels in rural areas for last-mile access.

VP Nandakumar, MD & CEO, Manappuram Finance 

While the Reserve Bank of India is looking to harmonise regulations for Banks and NBFCs, the Income Tax Act continues to differentiate. This is best exemplified in Section 43D of the Income Tax Act 1961 which provides “….the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or the State financial corporation or the State industrial investment corporation to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation, whichever is earlier.” This provision is an exception to the accrual system of accounting, which is regularly followed by such assessees for computation of total income. Its effect is that such assesses (scheduled banks, public financial institutions, State financial corporations, State industrial investment corporations and certain public companies like Housing Finance companies) need not pay tax on the interest accrued in bad or doubtful debt till such time the interest is received from the borrower. By keeping NBFCs out of the purview of Section 43D, our tax laws are subjecting NBFCs to unequal treatment as compared to other financial institutions.

 Union Budget 2019-20: Fintech firms want digital payments to be incentivised, push towards tech-led infra, tax relaxations

Representational image. AP

Gaurav Anand, Co-Founder & Director, Namaste Credit, online lending marketplace for small-and-medium enterprises

The current GST mechanism binds working capital, i.e. SMEs have to pay GST at an event of raising the invoice and they also have to extend a line of credit to their customers. This leads to reduced working capital. SMEs are borrowing to maintain working capital when they should be focused at building capital (like infrastructure and tech-enablement). This is a big deterrent to the growth of MSME sector. We hope government will re-look at GST levies and make it more friendly to SMEs. With respect to GST, there are just too many slabs complicating the computation and creating inefficiencies. This should be made simpler and effective rate of interest should be lowered.

The government must also take steps to revive real estate by making home loans more attractive. There is a massive unsold inventory in the country which could be liquidated by taking simple steps like increasing rebate on home loans. The increased rebate is not an actual fund outflow for government but can be really helpful to the reeling real estate sector. The government should give confidence NBFCs to alleviate current liquidity crisis for SMEs. We are not talking about operating issues but in case of macro events like global liquidity squeeze. Government should dedicate funds in the Digital India Program for complete digitization of loan documentation and processing. This will reduce the cost of credit and fasten the access to credit.

Himanshu Pujara, regional Managing Director, Asia Pacific, Euronet Services India

With measures being taken to make cash and digital payments more accessible to the common man, the government has demonstrated its willingness to work towards a more financially inclusive and empowered India. For the past few years, the Ministry of Finance and the RBI has been creating an enabling environment for the payment sector. We are optimistic that in this Budget the government will provide tax relaxations for fintech companies and payments players which will led us to increase penetration and provide better customer service through constant innovation.

Hardika Shah, Founder & CEO, Kinara Capital, NBFC

NBFCs play a critical role in the economic growth of India. They are no longer a niche side business. Any measures to ease capital flow will go a long way towards easing the liquidity crunch in the market, such as relaxing the FPI norms, extending TDS exemptions for interest payments to NBFCs just as banks and insurance companies enjoy.

Aditya Kumar, Founder & CEO Qbera.com, digital lending platform

With the Budget set to be announced in the coming days, here are a few expectations from the perspective of fintech lending companies.

Tax benefits for Fintech Startups: This is perhaps the most crucial area that has often attracted attention, regardless of what sector is being talked about. Tax benefits should ideally be in the form of rebates or exemptions—the government must offer tax incentives to startups (not confined to just fintechs) and exempt private investments in the sector from unfriendly tax burdens. Also, Fintech companies expected a reduction of Corporate Tax in the last budget, but considering that didn’t come through the last time, these companies are hoping for a different outcome this time around.

Addressing the NBFC crisis: The NBFC crisis, following the untimely collapse of IL&FS, has rendered many fintechs starving for funds to lend. There are essentially two types of fintech Lenders—NBFC fintechs and, fintech marketplaces. The second type is fintechs that have lending partners to further their lending operations. The first class of fintechs, i.e. NBFC Fintechs, have found it particularly difficult to raise enough capital to run a robust lending framework. The government is certainly on the move in this regard, doing quite a bit to tranquilize the impact of the crisis.

Eliminating Regulatory barriers and funding: Regulatory barriers have also served to quell the growth potential of the sector. The RBI has done its bit to address this issue by announcing the Sandbox Policy that essentially aims to let fintechs try and test-out disruptive technologies on a protected dataset, without regulatory influence. This policy aims to give Fintech companies a free hand in trying out new, potentially disruptive technologies, and go on to achieve impressive results that can bring in a spate of benefits. Raising Funding has also not been all that easy, and the government can do a lot more to help these companies gain easy and effortless access to funding.

Gaurav Chopra, Founder & CEO, IndiaLends, an online aggregator of financial products

We hope that this Budget would have initiatives aimed at driving digital adoption and expect the new government to push forward new reforms as part of ‘Digital India 2.0’. The government has taken tremendous efforts to promote 'Digital India' but there is scope for growth especially in interiors of the country. After the Aadhaar verdict, we hope that the government brings more clarity in the e-KYC process. A policy framework and budget allocation, if placed, for the adoption of the Electronic National Automated Clearing House (e-NACH) and DigiLocker technologies can act as a catalyst in further helping the industry and consumers at large. This will also enable small value lending without excessive documentation and ease the lending process altogether especially to the previously unbanked population of the country.

We hope that this Budget further strengthens the mandate of the Fintech Committee to make India the top fintech innovation centre in the world by ensuring policy to fast track paperless and presence-less access to finance. Although the government has strengthened its measures to curb cyber frauds with the National Security Council Secretariat functioning as the nodal agency, they should implement stricter laws and policies and conduct programmes to spread awareness about the cyber threats and how to deal with them. We also hope that the coming Budget will offer further tax sops as well as some special incentives offered to startups, and overall reduction in corporate tax.

Sangeet Modi, Co-Founder & Director, IndiaMoneyMart, a P2P platform

The NBFC-P2P provides a pool of opportunities to both the lenders and the borrowers to engage in business. The P2P model is a solution for many small businesses that are struggling for funds. Digital lending has changed the face of many developing countries’ economies because of the transparent environment and paperless approvals. So, from the perspective of Peer-to-Peer (P2P) industry in India, it has tremendous opportunities because this industry is still at a nascent stage and requires encouragement through tax benefits. Tax benefits can be provided on the interest income from peer-to-peer (P2P) lending business that will encourage investors to invest in this business. We also demand relaxation in norms to allow NRIs to be lenders on the platform and the interest income should be repatriable. At this point, bad loans are not good for the health of P2P industry and should be allowed to be adjusted against the interest income through P2P until the industry has settled in. It’s not only about business but a P2P lending revolution can help financial inclusion to a great extent.

Mahesh Shukla, founder, PayMe India, online lending platform

The demand of the industry is good liquidity. The Finance Minister should come up with policies that may boost liquidity in the sector. Moreover, the capital infusion should not only be restricted to large commercial banks. For financial inclusion in the country, NBFCs and regional banks should also be leveraged with the adequate capital infusion. Besides, rationalisation of various taxes like security transaction tax in the capital market should also be one of the top priorities of the FM in the upcoming Union Budget.

Rajiv M Ranjan, Founder & CMD, PaisaDukan, a P2P lending platform

While a great boost to the P2P industry would be via the regulator easing lending caps, we look forward to a critical role from the finance ministry for better financial inclusion by extending certain percentage exemption via Section 80C and also flexibility of handling defaults under a capital loss. These steps will ensure a great reach as an asset class and also better credit access to customers. One of the simplest ways to do it is to make investments in P2P lending tax-free akin to investments in certain mutual funds. Other such investments can, perhaps, be placed under Section 80C of Income Tax law. A lender should be allowed to set off or carry forward his losses as currently prevalent in other forms of investment. The same set of rules that exist for short-term and long-term capital losses can apply and there need not be any new provisions, especially for P2P.  It would be great if our industry is also given tax exemptions under the Income Tax Act. Getting access to institutional credit has been one of the major problems of the MSEs. It’s time the government looks at alternative financing option like P2P lending to solve the credit crisis.

Ankush Aggarwal, Founder, at Avail Finance, online lending startup

The government needs to create a strong regulatory body for the non-banking financial sector to address problems like the liquidity crunch in the sector while boosting the confidence of lenders and borrowers. This will ultimately lead to easier credit for the poor and needy, in-line with the government's plans for financial inclusion. In addition, we are also hoping to see some incentives for startups and an overall reduction in corporate tax.

Ravi Vishvanathan, Director, PayMate, a B2B payments and small business (SMB) financing solutions

Tweaking the Angel Tax has not helped in resolving the matter. The tax just needs to go and the entire section needs to be deleted altogether. The RBI’s Vision 2021 needs to be backed by bold measures in the Budget such as a reduced tax rate for businesses spending less in cash than the threshold level, lower stamp duty on contracts and agreements. Startup entrepreneurs in the fintech sector should be permitted to arrange for finance from family and friends and the restrictions on loan from friends and relations need to be relaxed to a great extent. NEFT/RTGS should become a 24/7 facility (with a half hour window for settlement if required). Fintechs should be permitted to operate on a low margin. Tax deduction on gross revenue results in negative cash flow for these entities. Either fintechs should be exempted from TDS or alternatively, zero/lower tax deduction certificates should be issued by default based on self-declaration.

Tanul Mishra, CEO, Afthonia Lab, an incubator

While the government has started work on strengthening and promoting the incubator ecosystem in India, there is still a wide chasm to cover. The government should focus on a better outreach plan for the incubators as they help startups with resources to sustain through their seed years. Secondly, I am hoping the government would launch more initiatives like SEBI sandbox for the fintech industry as it will help bridge the gap between the regulator and the fintech companies and also foster meaningful innovation with complete awareness of a complex financial framework. Having this crucial access will also enable startups to test their products or services in a close to real environment. I also hope to see the government explore public private partnerships of incubators since a mix of both can help the startups with the best insights, knowledge and access. Finally, I believe that the RBI’s Vision 2021 needs to include a key area that the road map is silent on KYC which would be essential for on boarding customers.

Deena Jacob, Co-founder, CFO & Head, Open, a neo-banking startup

While we have witnessed various steps towards boosting the startup environment and improving the ease of doing business, we still need to go a long way on tax, regulatory and digitisation aspects. Further steps to ease up the regulatory hurdles around the areas of financial inclusion and credit flow, enabling more technology based innovation is the need of the hour. Physical touch points still required in banking and financial sectors dampens the efforts towards financial inclusion. Aggressive and faster measures towards total digitization with essential and relevant regulations in place is a must for a paperless progressive economy. Hope to see a focus on these aspects in the budget this time.

Sameer Aggarwal, Founder & CEO, RevFin, an instant lending startup

There is a need to encourage voluntary disclosure of cash scheme with no tax implications. This will put money in to banks. Second, create a scheme (like SEZs) where small traders below certain earning are given tax exemption from income earned through digital medium in certain geographical regions. Geography can be defined on basis of areas of high cash utilisation and low bank presence. A few small steps would help ease of doing business. First, all tax and ROC compliance should be done once a year in a specified time frame and as a single process. Even new compliance requirements should be done as part of this rather than doing as a one off at different times during the year. This will reduce time and cost of using professional services. Process like TDS payments should be done through a direct debit process which should include all banks rather than a few banks only.

E-KYC using Aadhar should be allowed for certain types of organisations. This includes utilities (gas, electricity, internet, phone etc) and financial services (banks, NBFCs, insurance etc). The policy must clearly state requirements in terms of process, technology infrastructure and data security. Companies satisfying the criteria must be given full access to e KYC services without the need to make large security deposits or the need to go through intermediaries. Access to Aadhar based E KYC is important but so is the need to keep cost of that low for organisations and ease of use. The government must launch a national education program (like pulse polio or hum do humare do) to educate the country on benefits of digital payments. This must be done through private partnerships by extending tax benefits to small traders taking digital payments. National and state curriculum must also have financial literacy as a subject which should include practical classes taken by financial services companies (another way to get private partnership).

Vinay Bagri, Co-founder & CEO, NiYO, a fintech startup

In the first full budget of the new government, we expect a slew of measures from the government to ease the operating environment for fintech startups, particularly in the wake of the NBFC liquidity crisis and the setback to digital on-boarding through eKYC. We expect the government to push forward new reforms under the umbrella of “Digital India 2.0”, as well as strengthen the measures to achieve financial inclusion. We are hoping for tax relaxations for fintech companies and payments players which can pave the way for the fintech industry to increase investments in product innovation and customer service.

Mandar Agashe, Founder and Vice President, Sarvatra Technologies, technology services provider to rural banks

We expect Modi 2.0 to continue the momentum it picked up for its flagship program of ‘Digital India’. The smooth transition from an all-cash to a cashless economy is a huge leap forward and calls for robust infrastructure as a utility to every citizen. The government should therefore consider planning investments to strengthen the country’s digital and financial infrastructure. Considering the high costs involved in sustaining the ATM infrastructure across the country the government should encourage vendors for the deployment of POS-based Micro ATMs through subsidies and rewards. Besides providing incentives and tax benefits to merchants and financial institutions hosting digital payments will help accelerate the adoption phase.

Additionally, encouraging interoperability across new age platforms with the help of an agile technological infrastructure will enhance the convenience quotient thus facilitating the economy’s smooth transition from cash to cashless. The real ‘Bharat’ however lies in the towns and villages across the country. Therefore to drive the overall agenda of financial inclusion, the government should take proactive steps to on-board the rural and semi-urban India which constitutes for more than 70 percent of the country’s population. Educating and empowering people is the way to go. Hence programs with the aim of promoting digital literacy and awareness should be funded by the government.

Kushal Nahata, CEO & Co-Founder, FarEye, logistics-tech startup

Budget 2019 should include regulations that will drive organizations to digitalise key logistics and supply chain processes. For instance, by mandating digitalization of certain key accounting, billing, and logistics processes the government can ensure greater levels of compliance (especially with regards to environmental sustainability) and tackle corruption better. Also, this year’s budget should highlight the current state of eWay bill adoption. The pace of development of some crucial infrastructure remains slow. There is a need to speed up the development process of projects like the Dedicated Freight Corridor (DFC). We are also expecting announcements with regards to building integrated transportation hubs or Multi-Modal Logistics Parks.

The government can plan to introduce special windows to help logistics startups compete with large technology providers when it comes to winning government tenders. Also, there is an urgent need to simplify GST, especially with regards to the logistics industry. Once multiple types of businesses are brought under an organized trade structure, supply chain organizations will be able to deliver better value propositions to customers and hence boost revenue collections for the government. Deploying a uniform GST rate across the country is another initiative that the government needs to talk about in this year’s Budget.

UdayaBhaskar Rao Abburu, CEO & Managing Director, iRAM Technologies

Today, MSMEs are facing the problem with liquidity due to non-cooperation from banks. Although the government has the CGTMSE scheme, it is still not being implemented properly by banks. My expectation from the budget is that MSMEs and Indian start-ups should be given preference to participate in smart cities projects. In order to boost domestic manufacturing, we expect our honorable Finance Minister to provide duty exemption to those vendors who import raw materials for smart cities projects. This will give price parity for Indian manufacturers to compete against Chinese imports.

Saru Tumuluri, CEO, Khosla Labs, identity verification platform

Innovation in fintech should be driven more aggressively by the regulators. The regulatory sandboxes initiative needs to go live as quickly as possible starting with all the financial regulators enabling all the fintech players to develop more products in an accelerated manner—this will be a big boost in for the fintech landscape of India. A fintech innovation fund should be created to help boost startups in digital identity and fintech space.

Prafulla Mathur, Co-Founder, Queppelin, a tech startup

It will be great to have a special package which makes a difference on the ground for startups and MSME. This could include extending incentives on exports, concessional income tax rates for turnover upto 25 crores and reducing compliance on GST.

Sudeshna Datta, Co-Founder & Executive Vice President, Absolutdata, a data analytic firm

Although the Modi-led NDA has taken several initiatives to address the massive skill gap that India continues to face, we believe there’s still room for improvement. With technologies like artificial intelligence, machine learning and data analytics disrupting the very nature of industries, there is an urgent need for upskilling and reskilling the Indian youth. Therefore, we hope more funds will be allocated towards the development of tech-based skill-building and training programmes. The government should consider easing the ECB (External Commercial Borrowing) norms to ensure startups have a steady inflow of capital from foreign investors. This will facilitate the growth of early-stage tech startups, which often suffer due to fund shortage. We are also seeking tax relaxation from the forthcoming Budget. Moreover, we want the government to bring down the Minimum Alternate Tax (MAT) charged on SEZ developers from 18.5 percent to 12-15 percent. It was imposed in 2013, and it’s about time that the government brings forward a more favourable policy.

Gaurav Jalan, Founder & CEO, mPokket, loan provider app

We want the Union Budget of 2019-2020 to provide for ease and unification of compliances for Fintech companies. Fintech has the potential to play a significant role in shaping the future of the country’s economy, and a fairly consistent and conducive environment will enable startups to follow a proper procedure that facilitates proactive compliance along with helping avoid unnecessary costs. We believe that creating such a favorable environment will allow Fintech to survive and thrive in the ecosystem. Moreover, we hope that Fintech companies are allowed to participate in the recent initiative by SIDBI to provide loans under an hour, as well as in the various measures being taken under the Pradhan Mantri Mudra Yojna.

Rajarshi Bhattacharyya, Country Manager, SUSE India, Open Source software

In the upcoming Budget, the Government with its ‘Digital India’ vision should look to pushing reforms on digital innovation and creating policy frameworks that encourage MSMEs in India to invest in deep tech locally. First steps the Government needs to take is to improve infrastructure that supports disruptive technologies and enable companies like SUSE to align strategies in sync with ‘Digital India’. With a little encouragement from the policy makers by making regulatory compliance policies more friendly, there is potential to boost India’s digital footprint and innovation journey.

Jugal Kataria, Chief Financial Officer, Satin Creditcare Network Ltd, NBFC-MFI

In the 2019-2020 Budget, we expect the government to announce major financial sector reforms which shall drive momentum to India’s bigger goal of becoming a $5 trillion economy. However, in the current stir of the NBFC liquidity crisis, it has been quite grim for companies in the sector to do business. We are hopeful that the new Budget will introduce new norms and effective solutions to revive the NBFC sector which will have a positive impact on the economy. The creation of a dedicated liquidity window for non-banking finance companies (NBFC) sectors, review of interest rates on Small Savings Scheme and banks' non-performing assets (NPAs or bad loans) apart from other issues should be addressed on priority. Another vital expectation is that the rate cuts which have been availed to the banks be forwarded to NBFC-MFIs as this will help us to pass on the benefits to our customers as well.

Nitin Chhabra, CEO, Ace Turtle

Easing of regulatory norms is one of our key expectations from Union Budget 2019. Seamless compliance mechanism that saves time and money is the need of the hour. A single window clearance is expected from the government that will ease the process and save cost for startups. The process of reducing the tax issues in funding needs to continue and there is a need for faster implementation of the procedure to ease up startup finding. Moreover, with technological disruption being key for the growth of startups today, the government should encourage investments in technology hubs that will help to strengthen of domains such as Artificial Intelligence, Machine Learning, etc. The government must also bring in some respite to GST, by reducing the tax slabs for technology services and products which would encourage early adopter market to flourish in the current ecosystem.

Follow full coverage of Union Budget 2019-20 here

Updated Date: Jul 03, 2019 15:48:28 IST