Under the Start-up India scheme, the government announced several tax sops to encourage young entrepreneurs. However, for availing tax incentives, start-ups have to fulfill various terms and conditions and approval ladders. Of the 502 start-ups recognised till date, only eight have been approved for availing tax benefits.
This is contrary to the government’s claim of creating ease of doing business in India and the idea of Start-up India. The government should recalibrate its policy for start-ups to make the scheme more accessible.
Rationalisation of approval ladder
For availing tax benefits, start-ups are required to obtain recommendation, funding from government recognised incubators or angel/private equity investors. The proposal needs to be approved by Inter-Ministerial Board of Certification (IMB). The multiple level approval process is not only time consuming but defeats the entire idea of granting tax incentives to start-ups.
The government should do away with the requirement of IMB approval for availing tax benefits once necessary support funding is made by government recognised incubators or angel/private equity investors. It can put in additional reporting requirements to safeguard the interest of investors in such start-ups.
Rationalisation of I-T holiday
Considering that significant investment is made in technological innovation and newer types of products/services developed by these start-ups, very few of these start-ups are actually expected to make profits in first five years. In fact, the initial years may be loss making, resulting in no actual utilisation of tax holiday.
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The government should increase the window of tax holiday period to at least 7-10 years, within which start-ups may be allowed to avail a three-year tax holiday.
Capital gains exemption for angel/PE investment
Currently, any capital gains earned by angel/PE investors on exiting their investment in start-ups is liable to tax. To provide more incentives to angel/PE investors to make long-term investment in start-ups, the government may consider exempting long-term capital gains from investments made in start-ups.
Rationalisation of turnover limit
At present, only entities having turn-over of up to R25 crore and for a duration up to five years from date of registration/ incorporation are considered as start-ups. Considering significant technological innovation and
investments required in commercial utilisation of these innovations, the sector expects the government to increase the turnover limit to at least
R50 crore and initial gestation period to 7-10 years.
Service tax exemption
Currently, no exemption is granted to services provided by start-ups. To make services provided by start-ups commercially more viable, the government may consider providing service tax exemption to such start-ups, similar to those provided to certain incubators.
By- Shaliesh Kumar
The writer is director, direct taxation, Nangia & Co