Budget 2018: The union budget 2018 raised a ray of hope for the start-up ecosystem in the country with the promise of addressing the various issues relating to investment in such companies, but fell short of removing their biggest irritant: angel tax. The issue of angel tax has become the most contentious issue for the start-up ecosystem as the government currently treats any capital raised by a unlisted firm, especially at an early stage, as taxable income if it’s above the fair market value. However, the finance minister in his Budget 2018 speech said the government would take additional measures to strengthen the environment for growth of start-ups and their successful operation, generating hopes of the irritants being ironed out.
Padmaja Ruparel, president, Indian Angel Network (IAN) said, “The FM’s Budget 2018 speech gave centrestage to start-ups, angel investors and the VC community and committed to building a more enabling ecosystem, simplifying the regulatory regime and encouraging funding at seed and early stage”. However, V Balakrishnan, chairman, Exfinity Venture Partners, said the Budget had offered nothing to start-ups given the continuance of the draconian measure of angel tax. “The Budget should have removed the section. Not doing so is a huge disappointment,” he remarked. The Budget has also recognised the various finance instruments available for start-ups. “Hybrid instruments are suitable for attracting foreign investment in several niche areas, especially for start-ups and venture capital firms. The government will evolve a separate policy for hybrid instruments,” the finance minister said.
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Start-ups can raise capital investments in various forms which include equity financing, convertible debenture, venture debt, etc. A statement from Nasscom said, “Evolving a distinct policy for hybrid instruments, which are suitable for attracting foreign investments in several niche areas, will advantage start-ups and venture capital firms”. The Budget has introduced other regulations that would prove beneficial for start-ups. Harmonising the definition of ‘eligible business’ for a start-up with the modified definition by DIPP, extending the Start-up India scheme to March, 2021 and rationalising the condition of turnover would enable tens of thousands of start-ups to avail benefits under the Act.
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Mandar Gadkari, head of investor engagement, Cross Border Angels (CBA), said, “Though the Budget didn’t provide any specifics on the venture ecosystem, a mention that the government was in the process of framing policies and necessary frameworks for start-ups suggests a willingness to look at the issues faced by the ecosystem.” The reduction in corporate tax to 25% for firms with a turnover of up to Rs 250 crore would be a welcome change for start-ups. Harshil Mathur, CEO & co-founder, Razorpay, said, “The corporate tax cut to 25% for firms with revenue of up to Rs 250 crore will surely facilitate the ease of continuing and starting businesses as far as budding entrepreneurs & start-ups are concerned”.