Budget: Govt’s approach on Angel Tax under radar

It was a cold February morning in New Delhi when Finance Minister Arun Jaitley had delivered the BJP government’s maiden budget to a nation marred by economic instability, farm distress and a vulnerable middle-class. Chase to 2019, against the countdown to the budget that has already begun, interim finance minister Piyush Goyal will deliver his first budget, the last to be presented by the Prime Minister Narendra Modi-led government before the impending 2019 general elections. This budget is going to be crucial because it offers PM Modi one last opportunity to declare measures for the millions pinning their hopes on him and the electorate that’ll decide if it’s a yay or a nay for him this May.

When Modi rose to power with a whirlwind win in 2014, he saw a window of opportunity to alter and re-write the country’s maturing startup ecosystem and he grabbed it with both hands. Let’s take a walk down the road on how the budgets have helped or missed out on serving India’s thriving startup landscape.

In 2014, India was showing confident signs of a burgeoning startup ecosystem with great investments and M&A's taking place. In addition to it, Finance Minister Arun Jaitley had presented the sector with one of the most promising budgets – an Rs 10,000 crore startup fund for new businesses, Rs 100 crore and Rs 200 crore funds for rural entrepreneurs and scheduled caste entrepreneurs respectively.

Next year, Arun Jaitley announced Rs 1,000 crore for promotion of startups and entrepreneurs, particularly in the technology segment. Engaging the nation’s youth for inclusive and sustainable growth of the country, raising global capital, funding for seed capital and ease of doing business were tasks that were at the top of government’s minds in the Budget 2015.

In 2016, when Arun Jaitley was about to present the union budget, expectations from the startup community were skyrocketing. In order to boost small businesses and the MSME sectors, Jaitley announced various schemes and policies in sync with PM Modi’s Startup India action plan. He also provided for 100% tax deduction for 3 years and allotted Rs 500 crore for womenpreneurs and SC/ST entrepreneurs.

In the forthcoming year, the finance minister announced some great tax exemptions and policies for small businesses and startups, steps that the startup ecosystem applauded for days. Some crucial announcements were a reduction in the Income tax rate to 25% for domestic companies, reduction for presumptive taxation rate by 2%, an extension of Income Tax holiday for Start-ups and various other infrastructure investment and GST guidelines. But, there was no mention of angel tax, an important factor that affected start-ups in their early days, a fact that disappointed many start-up business owners in the Indian diaspora.

In 2018, Arun Jaitley made a series of proposals in his Budget 2019 that generated considerable interest within the startup community. The creation of a new regulatory regime for venture capital funds and angel investors, a national programme for artificial intelligence, 5 lakh Wi-Fi hotspots in rural areas and creation of hybrid instruments to attract venture capital investment all found mentions in Jaitley's speech. The startup community welcomed some of the announcements but was seeking clarity in some other things – draconian angel tax, GST related concerns, lack of clarity on startups that qualified for government funding and simpler regulation.

Finally, as we count down to this year’s, the ruling government’s final budget, what do you think startups are hoping to listen to? Entrepreneurs are expecting better remedial measures on the controversial angel tax, the tax that has become a severe dampener for startups as numerous companies get served notices by the Income Tax Department for investments received.

Another definite demand is related to the latest changes in the FDI rules for e-commerce which aims at bringing transparency into the industry and provide a level-playing field to all players in the ecosystem, including domestic sellers and smaller traders. The startup community feels that the government must ensure that Indian entrepreneurs are able to retain ownership and control while attracting funds from abroad. They also want the Centre to take steps to help startups grow. Also, a lack of incubation centres is distress for many. More incubation centres will help students straight out of college work on their innovative ideas and help first-generation entrepreneurs in using their funds productively.

(The writer is a Bengaluru-based economist and Ex-Vice-Chairperson, Nasscom Product Council)