Internet and mobile content service providers have sought exemption to start-ups from service tax for first three years.
They have also demanded exemption to ecommerce firms from VAT in states as they are already paying service tax.
"Start-ups have to pay huge amount over the first three years in way of service tax. It is not that they don't want to pay, but they have survival issues and this takes a back seat and penalties just make a struggling start-up's life harder," the Internet and Mobile Association of India (IAMAI) said in a statement.
IAMAI represents internet and mobile content providers.
It recommends waiver of service tax for the first three years and incentives if start-ups pay their taxes on time.
The industry body said that the digital start-up ecosystem in India should be systematically encouraged by focusing on specific fiscal interventions.
It said that Angel Tax under Sec 56 (2) of the Income Tax Act has not been actually tailored to restrict start-ups funding but it has put start-ups under the Income tax scanner, questioning the valuation by domestic individual investors.
"The criteria to qualify as an angel fund are stringent and need to be eased to support the start-up ecosystem in the country. The association suggests that there should be tax breaks and incentives for individuals supporting start-ups with capital," IAMAI said.
It said that there is need to streamline taxes for e-commerce companies. IAMAI said that e-commerce firms should be looked as market place and exempted from demand of VAT in states.
"The e-commerce marketplace industry is being subjected to onerous VAT demands from several states. They should be recognised as marketplaces and exempt from VAT demands in states. As market places they provide a service to online sellers and pay the service tax on that account," IAMAI said.
The industry body also urged government to facilitate policy environment to boost development of financial technologies like digital wallets, pre-paid instruments.
