Startups may, at last, see the end of the dreaded “Angel Tax” that has plagued them since 2012. The creation of an e-verification process and “special administrators” whose permission would be required before an Assessing Officer can begin inquiries against start-ups who have already received orders should extend relief to those who were excluded from the February 2019 circular by DPIIT. This can also solve for section 68 – wrt unexplained cash credits – which was the more onerous section by ensuring verification of investors. Extending the exemption of section 56(2)(viib) to Cat II AIFs also brings parity and greater participation between AIFs. The tax deduction for investments into startups saw relaxations in the holding period (5 to 3 years), reduction in the minimum threshold (50% to 25%) and extending the time period.
In this budget, the government recommitted to its ideal of a less-cash economy. By allowing digital payments to the government, they are essentially legitimizing the use of digital payment methods. Further, by disincentivizing cash withdrawals by applying TDS and mandating digital payment acceptance without charges for firms over turnover Rs 50 Crores, they will further “nudge” users into preferring paying digitally. The approach just provides for a reduction in cost and discourage cash expense. This is hardly a definite fiscal measure for incentivizing digital payment. Most importantly, the government is eating its own dogfood, and starting to make digital payments through a dedicated payments platform to its own MSME suppliers and contractors, not only boosting digital payments but providing a critical lifeline to MSMEs by reducing their working capital requirements. In fact, the government has announced a significant boost to improve the availability of credit to the economy. This includes providing Rs 70,000 Crore to the banking system, as well as a partial credit guarantee for the purchase of Rs 1 Lakh crore of pooled assets from the NBFC system. These measures should improve the availability of credit to the private sector, and boost growth! The govt has also announced an amendment to enable all NBFCs to lend against invoices through TReDs. These are steps in the right direction and will free up much-needed working capital for the industrial sector.
It is encouraging to see the government adopt technology to improve convenience and simplification for tax-payers. Currently, there are nearly 40 crore citizens in India with a PAN in contrast to 120 crore Indians with Aadhaar. “Interchangeability of PAN and Aadhaar” was announced by Nirmala Sitaraman which has the potential to increase the tax filing base to all Aadhar holders. The details about implementation are specified as follows. Income Tax Department shall allot PAN to every person who will be filing tax with Aadhaar and currently do not have a PAN. The demographic verification will be carried out using data from the Unique Identification Authority of India (UIDAI). Additionally, citizens who have both PAN and Aadhaar can choose to use either of the options to file their returns. While the move of interoperability clearly seems to increase ease of filing taxes, whether it would also increase the number of tax-payers in informal sectors is still a question that needs examination. Further, understanding the implications of increased data linkage includes the discussion of data security.
What was missing was an indication of “Startup India 2.0” – the new phase of Startup India. The Rs 20,000 Cr Startup Seed Fund wasn’t announced, nor were fresh incentives for investments into VC Funds or startups, rationalisation of ESOP taxation, amongst others. Lowering the LTCG ( Long term capital gain) rate on startups shares, which was alluded to in the Economic Survey, also doesn’t find mention in the Budget. Additionally, there have been no measures to help our startups list in Indian exchanges. Overall, this budget has also not delivered on promoting Rupee Capital Formation which would help local startups wean off volatile foreign capital.
Despite the Economic Survey’s focus on Data as a public good, no significant announcement was made to leverage the Data assets of the country. In the speech about soft power, while Yoga and Artisans rightfully got their place, new-age digital platforms like Aadhaar, BHIM-UPI and India Stack, which are truly world-class, did not see a mention. Recognizing these Digital Public Goods as elements of soft power that can be exported to other countries would also give a massive boost to India’s start-ups in markets abroad.
Reach out to Sanjay Jain ([email protected] ) in case you would like to know more details.