Budget 2019: Startups want same incentives as offered in other countries

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Updated: July 8, 2019 11:23:22 PM

Union Budget 2019: Start-ups sector expects the government to match the tax rate and incentives offered by countries like Singapore.

India Startup, Business, Budget 2019, EY IndiaUnion Budget 2019: Startups are seeking same incentives for themselves as offered in countries like Singapore.

Union Budget 2019: Finance Minister Nirmala Sitharaman’s budget speech will go a long way in allaying the apprehensions of start-ups and assures that they will not be harassed for receiving investment from Angel Investors. Other changes intended to give them relief have also been proposed in finance bill introduced by Nirmala Sitharaman. However, tax experts believe that from the long-term perspective, the Government needs to bring more changes in line with tax incentives offered/practices adopted by other tax jurisdictions to ensure that start-ups with exponential growth potential do not find a new base in other jurisdictions which provide simple tax system, easier tax compliances, lower corporate tax rate and exemption from capital gains tax on sale of shares by investors. Financial Express Online’s Krishnanand Tripathi spoke to Gaurav Chadha, Partner, EY India. (Views expressed are personal).

Q: How do you see the government’s budget proposals with regard to start-ups?

A: In line with expectation of the Start-up Sector, in the Budget 2019 government hs successfully addressed some of the key concerns of the start-up sector. In the budget speech, FM assured that measures will be taken to ease tax scrutiny burden on the start-up sector and for this administrative measures will be taken for resolving issues in ongoing start-up tax audits in relation to ‘Angel Tax issue’. Investments made by Category II – Alternative Investments Fund (AIF) have been provided exemption from the rigors of “Angel Tax”. Period for availing exemption in relation to re-investment of capital gains (earned from sale of residential property) in eligible start-up is extended to 31 March 2021 and threshold of investment in equity of eligible start-up has been reduced from 50% to 25%. Start-ups are now eligible to carry forward losses where 51% beneficial shareholding or voting power continues. Also, announcements like faceless tax audits in electronic mode, allocation of tax audits in random manner and issuance of notices by central cell is also positive news for the sector.

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Q: What other changes the start-up sector was looking for?

A: Currently there is a difference in DPIIT’s definition of eligible start-ups when they recognise start-ups and the definition provided in Income-tax Act, 1961. In my view there is a need to align these definitions. Second, for providing eligibility status there are some unnecessary restrictions ups such as no invest in a motor car, etc, these restrictions are not necessary and hence should be done away with.

Q: How Indian start-ups can be globally competitive?

A: There is no denying the fact that the government is taking concrete steps, easing compliance burden, giving re-investment benefits, promoting start-up culture. But one should be clear that we need to be competitive to other start-up jurisdictions (such as Singapore). Other jurisdictions have lower corporate tax rate, no capital gains tax on sale of shares by investors in start-ups and higher ease of doing business ranking. So if we don’t align ourselves with global practices or with the tax incentives offered by other jurisdictions then it is possible that start-ups growing at a exponential pace will find a new base in overseas jurisdiction.

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Q: But is it good enough or the industry was expecting some more relief?

A: Industry was expecting a blanket exemption from ‘Angel Tax’ issue. Though no blanket exemption from ‘Angel Tax’ has been provided, but reasonable measures have been announced to address concerns as regards ‘Angel Tax’ issue by the government. I am confident that government will continue to take steps in the right direction and India will soon be seen as a chosen jurisdiction from tax and compliance perspective as well. The idea to have a separate channel for startups under the aegis of Doordarshan will disseminate critical information in the industry on a real-time basis to budding entrepreneurs in the tier II and III markets particularly, enabling these entrepreneurs to help realize the Government of India’s vision of becoming a US$3 trillion economy this year.

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