Budget 2019 India: The budget has absolved startups from facing severe scrutiny from the tax office over the capital raised from angel investors and valuation ascribed to the company during the share sale event.
Budget 2019-20: The most contentious compliance norm for startups — angel tax has been dealt with strongly by the government in this year’s budget. The budget has absolved startups from facing severe scrutiny from the tax office over the capital raised from angel investors and valuation ascribed to the company during the share sale event.
Angel tax Breather
This is expected to bring huge respite for those startups as well whose tax assessment was pending even as preventing them from ‘harassment’ from tax officials.
“Draconian devil tax has been comprehensively addressed including some relief for pending cases that were causing a lot of angst. Best is the delinking of calculation and justification of share premium which is impossible as it is not an exact science,” said K Ganesh, Serial Entrepreneur & Partner – GrowthStory said in a note to Financial Express Online.
Now the only identity of investor and source of income needs to be proven – which is fair and straightforward, said Ganesh adding that having supervisory approval of Assessing Officer is welcome to reduce arbitrariness and prevent unwanted harassment.
Moreover, the startups that were exempted from angel tax on March 19 but had the (tax) order prior to that may now also qualify to get the relief from angel tax, LocalCircles chairman Sachin Taparia told Financial Express Online.
Government’s focus on electric mobility also found mention in Nirmala Sitharaman’s speech today. The minister highlighted working upon solar storage batteries and charging infrastructure under phase-II of the FAME scheme to fasten the development of electric vehicle (EV) ecosystem and further incentivising the purchase of EVs.
Considering our large consumer base, we aim to leapfrog and envision India as a global hub of manufacturing of Electric Vehicles. Inclusion of Solar storage batteries and charging infrastructure in the above scheme will boost our efforts. Government has already moved GST council to lower the GST rate on electric vehicles from 12% to 5%. Also to make electric vehicle affordable to consumers, our government will provide an additional income tax deduction of 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. This amounts to a benefit of around 2.5 lakh over the loan period to the taxpayers who take loans to purchase an electric vehicle.
“This will give a big boost to EV as a sector. They have also reduced the GST on EV from 12 per cent to 5 per cent. This is a big push as offering an additional deduction of Rs 1.5 lakh on the interest paid on loans taken four buying EV will make it quite affordable. They have also exempted certain components of EV from the customs duty to incentivise adoption. So for sunrise sectors like EV, it is great news overall,” Kovid Chugh, Director, Startup and Innovation, Grant Thornton told Financial Express Online.
Startups on TV
Interestingly, the finance minister announced a television channel under the DD umbrella particularly for start-ups to “serve as a platform for promoting startups, discussing issues affecting their growth, matchmaking with venture capitalists and for funding and tax planning,” Nirmala Sitharaman said.
In 2016, DPIIT (erstwhile DIPP) had reportedly proposed setting up of a TV channel dedicated to startups along with a reality show for startups to showcase their business model to investors, similar to the US-based programme Shark Tank. Startups pitch live to venture capital investors and post pitch, the investors decide whether to invest in a startup or not. However, the industry experts don’t seem to be convinced about the idea.
“I don’t know what was required there or what was not required there. I couldn’t understand it. I don’t know what was meant here,” Padmaja Ruparel, co-founder, Indian Angel Network told Financial Express Online.
Nonetheless, the channel might help micro-entrepreneurs and the emerging ones, with some inspiration and mentorship, in areas where digital penetration is low. “There are parts of the country where access to digital media is limited and young entrepreneurs or housewives engaged in home-based business from such areas may find it helpful,” said Chugh.
Moreover, the channel would “nudge people to take up self-employment or entrepreneurship or lead to SME industry creation. We are moving from Krishi Darshan phase to VC darshan phase,” added Ganesh.
Another area that is of interest included the ‘social stock exchange’ for listing social businesses “for the realization of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund,” according to the finance minister.
“The proposed creation of an electronic fundraising platform for social enterprises is something that will likely benefit India’s social impact startups who currently struggle to raise capital,” said Taparia. However, “what it translates into and how it works will have to be seen. We are looking for the fine print, how SEBI will react to this, what structure will come, added Ruparel.
The budget also permitted 100 per cent FDI for insurance intermediaries that would help boost the insurance segment within the startup sector by attracting more capital. “India is a very underinsured country. While players like Policybazaar have grown to a certain scale but others are struggling. While this is concerning but hopefully now with FDI, more investments via FDI will be encouraged in insurance technology,” added Chugh.
The issues, however, that are still left unaddressed included equalisation levy, reverse charge on foreign payments, input tax credit refunds to be processed, TDS refunds to be processed.