With the Union Budget around the corner, startups in the country are pinning their hopes on Finance Minister Nirmala Sitharaman to announce tax-related reforms. Angel tax, which was every startup’s biggest worry until the last budget was done away with. This year, from GST rationalisation to a tax holiday, startups are hoping the budget will announces initiatives that could attract more foreign capital and boost growth.
Shubh Bansal, co-founder of used cars marketplace Truebil says that he has strong expectations from the Union budget when it comes to reduction in GST charges as it will encourage foreign investors to invest more in Indian startups.
“One of the biggest steps from the Indian government in tax norms has been the relaxation of the angel tax for the startups registered. A reduction in personal income tax is necessary as it will put more money in the hands of the consumer. The assumption being that this extra money would then be spent on buying goods and/or services, thereby stoking demand,” he adds.
Harshil Mathur, CEO and Co-founder of Razorpay says that economy still needs a lot of push and that this budget should primarily focus on increasing consumer spending.
“The reduction of taxes and incentivisation of consumer spending through GST and personal taxes could help put the speed of our economy back on track. We also expect the budget to bring in some good news for the employees at startups. The introduction of some tax relief on ESOPs and charging tax on the liquidation of shares allotted under ESOP, instead of charging the employees on exercising their ESOPs will be very beneficial,” he says.
Echoing Harshil's views on ESOPs, a Snapdeal spokesperson said, “ESOPs are meant to reward the team that helps build a successful enterprise. Current laws tax the ESOPs prematurely when options are exercised. ESOPs should be taxed only when an employee has realised a benefit with regard to the same. Taxation should follow actual gains and not notional gains. Moreover, Founders/Promoters should be permitted to receive ESOPs - this is currently not allowed."
Sidhant Lamba, Founder, Fabrento, an online furniture rental startup wants the extra GST inputs should be credited back to startups. “Like for us, when we buy furniture, we have to pay GST in it, now when we rent, the GST in rent is adjusted against the already paid GST during purchase. But even then, the GST on purchase is much higher compared to what we adjust in rent, so we want that extra GST to be credited back to us,” he adds.
Sidhant is also wants the income tax holiday for startups to apply for all startups registered beginning April 2015.
Mitesh Shah, Head-Finance, BookMyShow is urging the government to rationalize GST rates on live entertainment
“Given the vast growth potential of the out-of-home entertainment sector and its impact in boosting tourism and the economy at large, reduction in GST rates in this field will help significantly in attracting investments as also give a much-needed fillip to the industry as we look towards making India a world class entertainment destination,” he says.
Given the economic slowdown in the country, startups are also hoping for measures that boost the economy as a whole. Akshay Singhal, Founder, Log 9 materials, working in Nanotechnology Domain says, “I think for startups there are already a lot of initiatives in action, improved mechanisms for execution of those schemes is extremely important. However, I am more concerned about the economy as a whole. To boost economy my suggestion would be to increase spending under Swachh Bharat Scheme may be via MNREGA to get Indian cities clean by employing the bottom of the pyramid.”
On the same lines, Siddharth Jain, Co- founder of Vaahika, an Online Truck and Freight Aggregator says that the Indian economy needs an urgent dose of consumption booster. “Thus, it would be wonderful to have provisions in the budget which could assist in an instant rise in consumer expenditures. Relaxation on personal income tax rates could be one such move that can act as a booster shot. We expect the budget to bring in provisions for lesser and reduced compliance for smaller companies; which as of today have to follow almost similar compliance that of a larger corporation,” he says.
Snapdeal too, hopes the tax limit is reduced on income above Rs 5 lakhs. “While any taxation changes will not impact CTCs, it will definitely improve purchasing power. More money in the hands of consumers will boost demand for goods and services including those offered by Internet companies which will, in the long run, benefit the economy,” a company spokesperson said.
Snapdeal also wants sales of unlisted equities to be taxed at the same rates as listed equities can be favorable to founder/investors and that long-term capital gain rates be the same for listed and unlisted equities. “For startup founders, employees and domestic investors, currently the tax rate of long-term capital gains is 28.5% compared to the same for listed equities to be 10%. This creates a significant tax burden on founders and employees of startups as well as domestic angel and institutional investors, who take the risk to back these companies. This discrimination in tax rates shouldn’t exist as it creates a significant economic disincentive for those owning equity in startups,” the spokesperson added.