The Budget season is here and Finance Minister Nirmala Sitharaman is expected to announce a slew of measures on Friday.
On the policy front, the budget development has been keenly observed by the startup sector. One of the primary expectation among several such startups has been related to a resolution for Angel Tax.
Section 56 (2) (viib) of the Act has come to be known as angel tax as wealthy individuals or angel investors putting their capital in startups face scrutiny. About 100 startups have been issued tax demand notices under the section.
Besides Angel tax, startups also face scrutiny under Section 68 of the Income Tax Act, 1961. Under this law, any unexplained funding raised by a startup can be held as income and taxable.
Momentary relief was offered to the community by the government in February. In order to encourage budding entrepreneurs, the government relaxed the definition of startups and raised the exemption limit for startups to ones with sales of up to Rs 100 crore (previously Rs 25 crore) eligible for the angel tax relief.
The relief from angel tax is now available to all eligible startups retrospectively, and some 342 startups have got an exemption since February. However, reports suggest several businesses suggesting that an income tax notice was still served to them.Here's what leaders from the startup business community expect from the budget:
•Upasana Taku, co-founder of Mobikwik:
"Initiatives like Digital India, Make In India have certainly put India on a digital innovation fast track. But as part of the fintech industry, I expect the Union Budget 2019 to give a further thrust to digitalization of services, especially in terms of investment in infrastructure, availability of capital, incentivizing 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."
•Sudeshna Datta, Co-Founder & Executive Vice President, Absolutdata:
"We expect the government to bring in new SOPs aimed at driving the growth of this sector. 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 also consider easing ECB (External Commercial Borrowing) norms to ensure start-ups have a steady inflow of capital from foreign investors. This will facilitate the growth of early-stage tech start-ups, 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% to 12-15%. It was imposed in 2013, and its about time that the government brings forward a favourable policy."
•Javed Tapia, Founder, Slonkit:
"Digital India, Startup India and India stack are very good initiatives to build a robust digital ecosystem. Measures such as self-certification of startups, rebate in filing patents, income tax exemptions, easier public procurement norms are welcome steps. While special incentives and reduction in corporate tax will help start-ups to sustain longer, clarity on areas such as Aadhar based KYC will give a strong business impetus to start-ups, especially the ones in fintech."
•Nikhil Arora, Vice President and Managing Director, GoDaddy India:
"As the re-elected Modi government stands to present their first Union Budget FY2019-20 this week, we are optimistic that the government will pave the way for a holistic economic development by ensuring a proper road map for Digital India 2.0, focusing on better sops and tax exemptions for both the startup community as well as the IT sector. With this Budget, we are also hopeful that the Government of India will provide special impetus on creating stronger infrastructure to accelerate the growth of women entrepreneurs and small business owners in Tier 2 and Tier 3 cities of the country."
•Paavan Nanda, Co-Founder, WinZO Games:
"We believe that the government should further incentivize the sector by relaxing the GST norms for first few years of the startup journey, this will support the venture initially as many of the ventures are bootstrapped or lack capital to scale extensively. The Modi government through Budget 2019, should also focus on ease of regulations and compliance to help fuel innovation in New India and promote future growth.
•Juergen Hase, CEO, Unlimit:
"We expect the government to announce a budget that will encourage the entrepreneurial energy in the economy leading to more jobs and development. Most start-ups have a variable source of income and need support from various government sources and investors to grow and become successful. They won’t have the bandwidth to manage multiple GST registrations. We’re hoping the forthcoming Union Budget will boost the start-up eco-system by abolishing the Angel Tax and introducing a single GST registration."
•Abhishek Goenka, CEO & CFO at CoWrks:
"The complexity of doing business remains very high. For every positive initiative taken, there has been, perhaps unintended, measures that drag down the entrepreneurial spirit. No doubt we have had a marked improvement in the rankings and that is commendable, but if there is one area that the Government really wants to focus on, it should be on simplifying business. This requires a concerted effort, a plan that includes the smallest of steps to be taken and perhaps should be done without a slogan attached to it." "There seems to be a trend of overzealous regulation to ensure governance. This has been counterproductive everywhere in the world, and the Budget would be a good time to address some structural concerns around bankruptcy, governance, reporting and enforcement."
•Vipin Raghavan, Co-founder and CEO at Haber:
"We would love to see the Indian government reward startups for R&D investments such as an R&D tax credit similar to those seen in some of the other economies like the US and Switzerland or increase the allowable deduction which is now 1.5 times."
•Kushal Nahata, CEO & Co-founder, FarEye:
"The Budget 2019 should include regulations that will drive organizations to digitalize 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."
•Neel Juriasingani, CEO & Co-founder, Datacultr:
"We believe that the funds allocated for the startups in the budget should be easily accessible to the startups incubated by the central or the state government.Besides, we expect that with the new budget, the government will introduce easy early stage funding and grants for tech start-ups working in the space of digital and financial inclusion."
•Rashi Gupta, Chief Data Scientist & Co-founder, Rezo.AI:
"Startups contribute substantiate growth to the economy. Hence, we urge the government to make early stage and growth capital more easily accessible for startups. Also, relaxation in the regulatory compliance procedures and development of incubation centres to aid employment generation and spur growth will open dynamics for startups to propel."
•Sudeep Singh CEO & Chief Evangelist, GoWork:
"The factor that tops my wish list with respect to the upcoming union budget is to see a reduction in the corporate tax rate to around 20-25% from the current 30%. This will catalyse profitability for organisations across sectors. I also hope this is an investor friendly budget that enables businesses at critical stages of growth overcome obstacles relating to funding. Making investment policies more liberal will attract more domestic and international investors for companies across scales and industries. While countries like the UK offer tax relief to angel investors for investing in startups via schemes like EIS, India seems to be taxing this investment, which is dipping the growth chart of MSMEs at the preliminary stages, and in a sense also curbing their global ambitions."
•Shashank Dixit, Founder & CEO, Deskera:
"Right on the top of my wishlist for this year’s budget are schemes to create jobs as that is integral to a lot of other systemic issues outside of unemployment such as affordable housing. More, high-quality jobs typically help address all other societal problems. I strongly feel SMEs taking to digital tools and becoming more efficient, will drive better jobs and outcomes. These initiatives will help us avoid stimuli, such as Universal Basic Income Schemes and other alternatives."
"The only other piece on my wishlist is to abolish the angel tax for government recognized startups and SMEs. It's unfair in structure and policy and curbs growth within SMEs and is largely detrimental to building a world-class startup and SME ecosystem in India."
•Rahul Singh, Co-founder & CEO, Ithaka:
"Travel startups bleed to compete with foreign registered travel companies as GST is not applicable on them. GST becomes a big amount as ticket sizes are big for travel bookings and hence affect the decision of traveler in choosing where to buy from. Also, sending money to vendors outside India could be easier to further promote making of global companies out of India."
"I also have high hope from this budget on startup ecosystem and want immediate removal of angel tax, which has been haunting both entrepreneurs and investors for a long time. Government should also encourage VCs by requiring less stringent paper work for funding."
"There should be single window for all compliances. Also, to boost employee retention and wealth creation for key people in a company there should be simpler regulations on ESOPs."
•Ameen Khwaja, Co-Founder and CEO, PTron
"Adding more jobs to rural economy, currently suffering owing to agrarian distress would definitely help in employment generation as well as better spending capacities."
"Since GST is evidently helping India progress financially, the government should further ease the GST norms encouraging more commercial establishments to register and add to the GST collections. Lowering the Income tax rates would help in increased purchasing capacity and with the growth in consumption, the indirect tax earning of the government would increase. Currently, 21% of government spending is borne by earnings through individual income tax. This can be compensated to some extent by indirect taxes that stand to benefit with increased consumption due to fall in individual tax burden."
•Deena Jacob, Co-founder, CFO & Head, Open
"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."