Startup India: Prime Minister Narendra Modi’s 19-point action plan on start-ups has failed to meet the expectation of some venture capitalists and new start-ups. Many start-ups may not be able to leverage from the tax holiday for first three years as they barely report profits in the first few years of operations.
Startup India: Many start-ups may not be able to leverage from the tax holiday for first three years as they barely report profits in the first few years of operations. On the other hand, incentives for venture capitalists to invest in start-ups in India was also given a miss in the plan.
“In initial three years, generally the start-ups don’t have so much profits and they may not avail the full benefit of the scheme. Instead of the exemption, deduction on lines of Section 35 AD of the Income Tax Act, 1961 can also be considered for the start-ups,” according to Amit Jindal, partner at Felix Advisor.
“If full deduction is available on capital expenditure to start-ups in initial year, then for eight years they can carry forward the business losses and can get set off against the business income which may improve their cash flows,” Jindal added.
Tax exemption from capital gains on investments in start-ups will likely encourage investment as managing cash flow continues to be a challenge for start-ups, according to government. But entrepreneurs see very little benefit in the same.
Peesh Chopra, managing Partner of Peesh Venture Capital says that it’s a positive step by the government but the concerns of venture capitalists in India and outside India have been left unanswered. “There are no announcements that will change or improve the investments from venture capitalists, domestically or foreign. It will not lead them to invest more or more often in start-ups.”
Amit Dube, founder of FoodAbhi said that government needs to ensure that no sector is hyper-capitalised. “It must build confidence in the India story and encourage investments from venture capitalists in start-ups,” he said.
“The government has released a global macro-economic plan but its success will only be determined if it translates in tangible steps,” said Shilpa Sharma, founder at Jaypore.com
Also there is less for older start-ups such as Flipkart, Snapdeal, Zomato, and Foodpanda, which are more than five-years old and not eligible for the tax relief. Prime Minister has also restricted the benefits to start-ups involved in innovation or technology or providing a service which is significantly better than an existing one.
We will have to wait until the Budget to get further clarity on the taxation norms and funding regulations. But we have a seen a mixed bag of emotions on the start-up India initiative so far.