In a much-needed relief for startups reeling from the issue of Angel Tax, Finance Minister Nirmala Sitharaman has eased Angel Tax norms. Startups and its investors, who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums.
Sitharaman also said that the issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department.
Further, special administrative arrangements will be made by Central Board of Direct Taxes (CBDT) for pending assessments and grievance redressal.
At present, startups are not required to justify fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF). The Finance Minister proposed to extend this benefit to Category-II Alternative Investment Funds also. Therefore, valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny.
In other tax benefits announced for startups, Sitharaman proposed to relax some of the conditions to carry forward and set off of losses in the case of startups. She also proposed to extend the period of exemption of capital gains arising from sale of residential house for investment in startups up to March 31, 2021 and relax certain conditions of this exemption.
In addition, the FM also proposed to start a television program within the DD bouquet of channels exclusively for startups. This, she said, will be a platform to promote startups, discuss issues affecting their growth and will also aid in matchmaking with venture capitalists and for funding and tax planning. This channel shall be designed and executed by startups themselves.
Apart from startups, the budget also saw a slew of incentives for Medium, Small and Micro Enterprises (MSMEs).
Under the Pradhan Mantri Karam Yogi Maandhan Scheme, the budget extends pension benefits to three crore retail traders and small shopkeepers with annual turnover less than Rs. 1.5 crore.
In addition, Rs 350 crore has been allocated for FY20 for 2% interest subvention (on fresh or incremental loans) to all GST-registered MSMEs, under the Interest Subvention Scheme for MSMEs.
It also announced that loans of Rs 1 crore for MSMEs are being cleared within 59 minutes through an online portal.
The budget also proposes that a payment platform for MSMEs be created to enable filing of bills and payment thereof, to eliminate delays in government payments.
The startup industry – both founders and investors – cheered the budget, especially thanks to the much-needed relief around Angel Tax.
“FM announced doing away with Angel tax. This has been a long-standing demand of the industry and we welcome this move. Apart from Angel tax, 2 other good areas to broad base and foster spirit of entrepreneurship in tier 2 and 3 cities by launching ASPIRE incubators in tier 2 and 3 cities... I think 2 aspects that may have gone unnoticed is the Social stock exchange through which social entrepreneurs will be able to raise money and global investors meet which the govt is planning will obviously boost early stage investment ecosystem here,” Bhaskar Majumdar, Managing Partner, Unicorn India Ventures said.
“The startup initiatives outlined in this budget are very encouraging and will further foster the innovation environment in India. Ease in accounting for Angel tax, incubators and removal of charges for cashless transactions are all very positive steps to create more start ups and thereby creating jobs in this sector,” Anand Naik, Co-founder CEO, Sequretek said.
“A series of incentives accorded to startups in the Union Budget is a testimony to the government’s intent of fostering an enabling ecosystem to promote entrepreneurship in India. The move to set-up around 80 “livelihood business incubators" and 20 tech business incubators is commendable as it will boost entrepreneurship besides upskilling the workforce to meet demands of industry 4.0. Furthermore, the easing of Angel Tax on Start-ups and the proposal to revamp the Labour Laws will improve the Ease of Doing Business in the Indian economy. The extension of Women SHG Interest Subvention Programme will boost women entrepreneurship,” Rohit Manglik, CEO, EduGorilla said.