Start Up India laid the foundation, now the Budget should set things rolling. The big boost to entrepreneurial energy in India can get a real fillip if the start-up plan is actually put into action, in all its financial elements. A healthy and clear tax regime is at the centre of their wishlist. A key highlight of the Start Up India Day in January was the launch of the Rs 10,000-crore fund with exemptions from income tax, capital gains tax and a big rebate in patent filing cost – these need to be addressed during the upcoming Budget.
Fixing the tax structure may stem the trend of start-ups leaving India for other tax-friendly countries like Singapore.
Angel Tax: There is hope that the Budget will move towards the removal of capital gains tax that angel investors pay. Equity investments from angel investors into start-ups should not be taxed irrespective of the valuation.
Currently, most owners fear that if both the company and the investor have agreed on a valuation, the tax department may question that and impose an income tax. Capital raised by an unlisted company from any individual against an issue of shares in excess of the fair market value is taxable as “income from other sources” under Sec 56 (2) of the Income Tax Act.
In its pre-Budget recommendations for the start-up and e-commerce ecosystem, Nasscom too urged the government to exempt start-ups from direct and indirect taxes, something that would reduce compliance burden and reduce cash outflows.
President R Chandrasekhar said that policy regulations like the ease of compliance, reliance on self-certification instead of audits, and tax exemptions for start-ups will allow entrepreneurs to devote their time, energy, and resources to build upon their innovative ideas.
Tax Breaks: The Start Up Action plan talked of a three-year holiday from paying income taxes. This needs to be spelt out in fineprint.
Rs 10,000 crore corpus: The Start Up Action plan talked of a massive corpus of Rs 10,000 crore aimed at widening the start-up base and increase the reach of funds to those who have limited access to incubators and angel investors. Details on how these funds will be allocated and more on eligibility criteria would be welcome.
Ease of doing business: Snapdeal Founder Kunal Bahl said at the recently concluded Make In India week that Indian regulations were dated. “What is needed is the simplification of regulations and not more regulations,” he said.
Digital payments space: With a large number of players entering digital payments space, Budget could shed light on how this area would be developed further given the large numbers using it. Comments on digital banking, peer-to-peer transfers and other new-age mobile payment concepts should get some direction from the government.
The alternate transactional sector in the upcoming Budget will give digital commerce a big boost and is hoping special comments in the Budget.
Financial technology: There is plenty of buzz around the financial technology both in terms of getting big ticket investments as well as the widening of the ‘transaction’ system. The Budget could spell out the financial environment in which these could thrive and grow. Incentivising innovation in this space can considerably spur start-ups.
These are just a few of the demands from the government in the Budget. It would be pretty useful to have simple norms, less regulation and faster execution to support what’s a vibrant start-up ecosystem.