After Angel tax, startups are looking at relief from these growth challenges under new Modi government

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Updated: May 25, 2019 4:06:27 PM

The government had reduced the GST rate from 18 per cent to 5 per cent in January last year for startups in online home services space including UrbanClap, Housejoy etc., that was claimed to be threatening the low margin business of home services players.

BJP, North East footprint,narendra Modi, Act East policy votersBJP in its election manifesto had announced the creation of a ‘seed startup fund’ worth Rs 20,000 crore.

Even while the issue of angel tax has been largely worked around for startups by the outgoing NDA government, the startups are expecting further ease in compliance around Goods and Services Tax (GST) and benefits out of it from PM Modi 2.0.

“We expect the government to streamline taxes and make GST and TDS filing on a quarterly basis for startups who are currently adversely affected by working capital crunch due to the monthly filing. It should also ease FDI and RBI rules and make the regulatory environment easier for start-ups who are raising funding overseas,” said Ravi Pardhi, Co-founder, Skillbox.

GST Ease

The government had reduced the GST rate from 18 per cent to 5 per cent in January last year for startups in online home services space including UrbanClap, Housejoy etc., that was claimed to be threatening the low margin business of home services players. Moreover, in August last year, the GST Council had proposed a 20 per cent cashback on the GST component of transactions done online by customers to enhance digital payments.

The expectations are to have “tax and GST benefit for businesses opting for digital transactions,” said Harshil Mathur, CEO & Co-Founder, Razorpay. “We expect streamlined regulatory mechanisms, reduced tax rates, enhanced tax exemptions can be expected,” added Alok Mittal, Founder and CEO, Indifi Technologies.

BJP in its election manifesto in April this year had said that with respect to further easing of the regulatory scenario in India for startups, it will target time spent on tax compliance at just one hour per month.

“DPIIT has spent time and made efforts to understand what startups need. To that extent, steps it is taking such as reduction of time in compliance, exemption from angel tax have come from that deep understanding. With these benefits, we could soon become the second largest ecosystem after the US. So having 50,000 startups by 2024 is not a long shot at all,” Dr Saurabh Srivastava, Chairman Emeritus, TiE Delhi-NCR and Co-founder at Indian Angel Network told Financial Express Online.

DPIIT had issued notification on February 19 this year pertaining to the number of years since incorporation, turnover, and amount raised by startups up to Rs 25 crore in angel funding to apply for the angel tax exemption.

Credit Extension

Another area of expectations is around lending to small businesses to mobilize access to financial services and empower the fintech companies that facilitate them. “For instance, extending credit guarantee schemes such as Mudra and facilitating better data access to alternate lending companies can help in bolstering the impact and reach of these initiatives. Doing so can ensure a step closer to financial inclusion and high growth potential for MSMEs in India,” said Mittal.

Total sanctions under the Mudra loan scheme to micro industries are likely to grow beyond Rs 3 lakh crore in FY20, IANS had reported citing a senior source at the Finance Ministry. For FY19 (till March 22 this year), the amount stood at Rs 2.82 lakh crore to 541.27 lakh borrowers as per the government data, it added.

Capital Across Stages

With respect to funding to startups, BJP in its election manifesto had announced the creation of a ‘seed startup fund’ worth Rs 20,000 crore and offering collateral-free credit up to Rs 50 lakh for entrepreneurs under a new loan scheme. Startups in India believe it to be a game-changer for young entrepreneurs.

“This is a fantastic objective and vision and it will transform India. The biggest challenge for startups is lack of seed funding which the government will solve,” former Infosys’s chief financial officer and technology investor T V Mohandas Pai had told Financial Express Online.

“This is expected to be a game-changer for the millennial. We are keen on how the new government will deal with this. Nonetheless, the biggest positive impact that we can see is the funding and the ease on regulatory hurdles, if that will be implemented correctly then it will be counted as a significant change,” said Sameer Aggarwal, Founder and CEO at lending startup RevFin.

iCreate, an Ahmedabad-based technology business incubator inaugurated by PM Modi last year said that the government would need to focus on making capital accessible to both early stage and growth stage startups. “Funding needs to be made available to innovators even outside the ambit of established research and academic organisations,” said Anupam Jalote, CEO, iCreate.

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