Interim budget: Will startups get a relief from angel tax demons?

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In the upcoming interim budget, Interim Finance Minister Piyush Goyal is likely to announce sops to boost the government's flagship programmes and schemes such as Digital India, Make in India, Startup India, and MUDRA.

One of the biggest stakeholder, startups, expects the government to bring in an immediate change in the angel tax structure since it has hampered new investments. Many startups point out that the government should come up with a considerable provision of value-added services like marketing fees, advertising and other such promotions that need to be considered under a progressively lower GST tax structure. The government can also consider increasing online accounting and online tax calculation procedures which will benefit many startups from an easy compliance regime.

The fintech startups pointed out the absence of a policy framework which is necessary for the adoption of new technologies. “We expect the government to announce tax concessions in digital transactions which will, in turn, encourage electronic transactions across the industry. Also, a new policy framework is required for the adoption of newer technologies like Electronic National Automated Clearing House (e-NACH) as it will help the industry and finally, the end consumer. It should also further strengthen the fintech and NBFCs who provide credit facilities within the country besides providing solutions to avoid a liquidity crisis. Offering relaxation and flexibility will enable NBFCs to offer credit effortlessly and effectively. A normal corporate tax rate of 30 per cent along with dividend distribution tax of 20 per cent makes the effective tax way too high for a company. Although the government has taken initiatives in recent times to give a push to entrepreneurialism, corporates and startups are expecting more such steps. At the same time, the steps taken by the government to increase the GST exemption limit to Rs 40 lakh is a well taken pre-budget move,” Rajiv Ranjan, the founder and CMD, of the Mumbai-based P2P lending platform told THE WEEK.

Some experts observed that since startups are working overtime to bring simplicity and efficiency to the citizens across the spectrum, the government should a grant 10-year tax holiday to successful and profitable startups so that they can scale up faster to serve more people. “If the current tax break to startups with a turnover of less than Rs 25 crore gets modified to startups with a profit of more than Rs 5 crore, many startups will start working more responsibly to make prudent business models,” remarked Anand Kumar Bajaj, the founder and CEO of PayNearby.

Some startups strongly expect better angel tax structure. “The angel tax significantly impairs the fund raising capacity of a startup and hence needs to be changed to ensure that genuine startups are not being burdened by it. As startups are cash burning entities in their formative years, we look forward to extension of tax sops benefiting the company in the future. We also expect further relaxation on the minimum quantum and periodicity of GST returns. There should also be tax benefits for startup employees because it is not just the company, but the people working in it also take great career risks in pursuit of something for the greater good. Lesser taxation or higher tax slabs for startup employees will to an extent solve the dearth of high quality talent in startups and foster greater levels of innovation,” said Abhishek Gandhi, co-founder and CFO of the startup RupeeCircle.

Similarly, a startup in the education sector suggests that the government, with the technology available, should aim to capture and track the learning outcome data of each and every child in our school system. “If we have budgetary outlays to ensure better collection and tracking of assessment data at the block level, it will reinvigorate the multiple initiatives in India’s education system. We could start this by implementing it for the 14 crore children in primary schools in India. It is about time we aim to ensure that each and every child in India reaches their grade-level expectations, and there be no compromise on it,” remarked Naveen Mandava, co-founder of IMAX Program by ClassKlap.