1. Startup India event: Industry seeks tax clarity and exemptions for startup growth

Startup India event: Industry seeks tax clarity and exemptions for startup growth

Clarity on taxation is high on the agenda of entrepreneurs, investors and incubators as the government gets set to host its first start-up event on Saturday with an aim to become a global start-up hub.

By: and | New Delhi | Updated: January 15, 2016 2:09 PM
geek L State tax officials are of the view that since e-commerce companies hold, store and deliver products on behalf of the sellers, they can be considered as “dealers” and are liable to pay tax. (Reuters photo)

Clarity on taxation is high on the agenda of entrepreneurs, investors and incubators as the government gets set to host its first start-up event on Saturday with an aim to become a global start-up hub.

“The biggest challenge facing start-ups is the confusion in the investment climate,” says Ravi Narayan director at Microsoft Ventures.

“There is plenty of money in the ecosystem, but raising money is still hard in India than overseas, ” he said.

For instance, the poster boys of the Indian start-up ecosystem are the e-commerce companies such as Flipkart, Snapdeal and Shopclues. These online retailers have taken major chunk of the private investments and have helped in the growth of start-up ecosystem.  But they are stuck in tax wrangles.

The case in point is the move by various state governments including Karnataka, Kerala and Delhi, that have proposed to impose a 1% value added tax on e-commerce firms.

State tax officials are of the view that since e-commerce companies hold, store and deliver products on behalf of the sellers, they can be considered as “dealers” and are liable to pay tax. E-commerce websites allow sellers to sell products using their platforms but they don’t sell it themselves. This creates ambiguity on value added taxation, says Rupak Agarwal business head at Godrej Properties. In one such dispute, Flipkart successfully got a favourable judgement when the Kerala High Court said the Bangalore-based company need not pay tax. Delhi has clarified on its tax rules as well, while Rajasthan has classified e-commerce firms as marketplaces thus exempting them from paying VAT.

However, the lack of a law to define this is yet to be made in many states. Next is the case of service taxes on every sale and transaction, especially in the first three years when they grapple to get a foothold and are burning cash to acquire new customers and offer deep discounts. In fact, none of the start-ups have made profits as yet in the country, while the service tax adds to their bag of woes. Keshav R Murugesh, Group CEO of WSN Global Services says, “No taxes on start-ups for 5-7 years will enable them to focus on their business first and pay taxes when they actually have some earnings”.

“It is not that they don’t want to pay, but they have survival issues and this takes a back seat and penalties just make start-ups’s life harder,”  the Internet and Mobile Association of India said in a note on the Start-up event.

IAMAI has suggested that the government should waive off the service tax for the first three years, or incentivise the companies if they pay it in time. Implementation of the long-pending Goods and Services Tax is one of the key measures that “will help in making India a global start-up hub” said KA Srinivasan co-founder of Amagi, a Bangalore-based media start-up.

For investors and incubators such as Ravi Narayan, director of Microsoft Ventures the “biggest challenge facing start-ups is the confusion in the investment climate”.

The unclear rules makes it hard for entrepreneurs to raise money in India, he says. IAMAI says that Angel Tax as defined by the Indian Income Tax Act “has not been actually tailored to restrict start ups funding but it has put the start-ups under the Income Tax scanner.” The association further suggested that angels and investors supporting start-ups with capital should be given tax breaks and incentives, because all start-ups need early stage funding. Microsoft Venture’s Narayan says the government should also extend tax breaks to incubators as well.

“Given their role in mentoring and connecting innovators to business growth opportunities, we believe that funds contributed to incubators should be treated at par with investments in research and development (R&D) activities for businesses, and proportionally we believe that the entities that contribute funds to incubators should also be eligible for the 200% tax benefit that is currently applicable to R&D investments,” Narayan said.

The National Association of Software and Services Companies, or Nasscom, the technology industry lobby is also batting for exemption from direct and indirect taxes as well as minimum alternate tax for start-ups, saying such a move “would reduce compliance burden and reduce cash outflows.” Apart from taxation, start-up founders say they also want the government to boost physical and communications infrastructure. “We have some changes to make at every basic levels when it comes to the Wi-Fi and 4G networks, technology penetration in tier 3 and 4 cities…” says Supam Maheshwari founder and chief executive of Firstcry.com. In the meantime, the Reserve Bank of India has designated an email id to receive and answer queries from start-ups to act as a help desk for entrepreneurs, according to a note from Nasscom, the technology industry trade body.

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    1. Hemen Parekh
      Jan 16, 2016 at 5:23 am
      " BACK FACTORY " OF THE WORLD ? China is known as the " Factory " of the World India is known as the " Back Office " of the World Can India become the " Back Factory " of the World ? Wrong question ! Right question is : WHEN can we become the " Back Factory " of the World ? Answer is " hiding in plain sight " ! This week , an astronaut , sitting in a satellite 400 km above the earth and hurtling through space at 16,000 km per hour , operated a robot on the earth Earlier , Indian scientists sitting in Shri Harikota space centre , have operated MOM ( Mars Orbital Mission ) remotely From a distance of millions of miles And soon , astronauts will be sending emails to earthlings from millions of miles away , using " Space Internet " on their Mobile phones Invariably , each such team of scientists , comprised Indians ! So , WHEN can our scientists - and software START UPs - enable Indian workers , sitting in Hyderabad / Chennai etc , to operate / manite , machinery in factories of Europe / America / China ? I believe this can become a reality by 2020 , if Central Government and State Governments , just get out of the way of our scientists / START UPs and leave them alone ! Then tell them : " You are our next generation of Freedom Fighters . Free our millions from poverty / starvation / jobless depression / ignominy / suicides Like war - ravaged people of North Africa , Indians cannot invade Europe / Australia / Canada , in search of jobs / better life We depend upon you to bring the jobs to India - remotely executed jobs such as , * Operating Machinery in Factories abroad * Controlling Air Traffic at Airports around the World * Operating upon patients in Hospitals , all over * Teaching students in Schools , in remote Africa * Any job that currently requires immediate presence of a worker And , if you set up a " BACK FACTORY " , you don't need to pay Corporate Income Tax for next 10 years ! Simply register on web site of Income Tax Department as a " BACK FACTORY " owner and file annual " Zero Corporate Tax Return " When this happens , * Millions of skilled Indian workers will operate factories around the World , sitting in , internet connected " BACK FACTORIES " in small Indian towns * Foxconn will not need to replace its high-wage Chinese workers with one million robots ( as officially announced sometime back ) At half the wages of those Chinese workers , Indians will operate Foxconn factories , all over the World , remotely ! * " Contract Labour Act " will need to be replaced with " Back Factory " Act * " Minimum Wages Act " will need to be sped ! * India will not need to fight with WTO on " Manpower / Service Exports " * " Make in India " will morph into " Make from India " I hope , while announcing the START UP policy today ( 16 Jan 2016 ) , Hon PM will ask , Narayan Murthy / Sam Pitroda / Azim Premji / Sundar Pichai / Satya Nadela / Ray Kurzweil etc : " How soon can this be done ? How can you help ? " ------------------------------------------------------------------------- ( This suggestion was sent to Prime Minister on 10 Sept 2015 ) hemen parekh / blogs
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