Tax incentives welcome, but more measures needed, say startups

The startup community reacted positively to the tax incentives announced in the Budget, but feels the government has not done enough to address their near-term concerns.

They added that investors would have benefitted if capital gains on investments in listed and unlisted companies were treated at par, even as they welcomed the three-year tax exemption for startups. This will reduce compliance burden and cash outflows, allowing new ventures to invest in product development and scaling up businesses, they said.

"We were expecting more radical reforms in the Budget for startups. While we welcome the the three-year tax holiday, the fact that the Budget has retained MAT negates much of the advantages, as we have cash-flow problems in initial years," said Ravi Gururaj, chairman of Nascomm Product Council.

He also said capital gains tax on investments in listed and unlisted companies have not been treated at par, which makes it unattractive to invest in startups that are already more risky.

Travelkhana CEO and Co-Founder Pushpinder Singh said, "The Budget has been quiet on certain aspects (like GST) although some future actions have been promised. We would have to wait and watch out for those initiatives."

Jewellery and fashion accessories e-tailer Voylla's founder Vishwas Shringi welcomed the proposal of one-day speedy registration of companies, but added that imposition of 1 per cent excise duty on branded jewellery is a dampener.

Indian Angel Network co-founder Saurabh Srivastava said while exemption from capital gains tax was expected, it would have been beneficial if capital gains tax regime for unlisted companies was aligned with that for listed companies, at least for investments made by Sebi registered alternative investment funds.

"This would end the discrimination against domestic venture capital funds as foreign funds anyway pay no capital gains tax by investing from Mauritius and other treaty friendly countries," he said.

In order to encourage indigenous research and development, the Budget proposed to put in place a concessional taxation regime for income from patents.

Industry think-tank iSpirt Foundation said it will encourage companies to file more patents in the country, but said taxation rules should have been simplified.

"We are disappointed with no attention being given to

easing taxation norms of software firms where there is significant friction, confusion on 'goods' versus 'service' tax on online downloads, TDS on sale of software products and competition from foreign firms selling B2C products without any tax in the country," Sharad Sharma of iSpirt said.

Venture Catalysts co-founder Apoorv Ranjan Sharma lauded introduction of hubs to support SC/ST entrepreneurs as a step towards promoting the Startup India initiative.

"However, it would have been great if the finance minister included some reforms in order to accelerate angel investment model as well," he said.

Also, by enabling one-day registrations for startups, the government has focused on bringing in ease of doing business for the ventures, he added.

Rajiv Vij, MD and CEO of Carzonrent, said," Though the 'Smart City' development is running behind schedule, the focus on infrastructure development is the first step in that direction. The finance minister's push to skill development as an element of 'Make In India' is a positive step.

"We believe the Union Budget 2016-17 is well aligned with Prime Minister’s ‘Make in India’ and ‘Startup India’ campaign. The budget focuses clearly on growth, development, job creation and creating a better environment for doing business in India. Besides a particular focus on startups by giving them exemption on their profits for the first three years is a welcome move. The relaxation in capital gain tax for investment in Funds of Funds and reducing the time frame to two years from three for availing long term capital gain tax benefit in the unlisted space will further boost the investment in startups," Manish Kumar, Co-founder & CEO  GREX.