Progressive steps taken by the Union Government for the Startup Community in its Start-up India initiative are encouraging. We hope the Union budget will reflect a similar sentiment and introduce policies around tax relaxations and process simplifications.
The structure of taxation and corporate laws in India is not very conducive for startups and early stage companies. A lot of these issues were addressed by the Union Government in their Start-Up India policy.
The industry is hoping for a fair budget and has a lot of expectations from the government to help ease setting up businesses. There are a lot things that can be improved to make the environment more friendly for startups and here is what we feel can be done to boost the ecosystem:
Income Tax: Mr. Modi recently announced that startups will not be charged Income Tax in the first 3 years.
Though that’s a step forward in the right direction, it’s common knowledge that very few startups are profitable in the first 3 years, and if that is the case they will any ways be not paying tax.
Instead of capping it on based on the number of years, tax relaxation should be provided in the first few years of profitability.
Additionally, while a company is making losses, they still have to pay tax (through TDS) and the tax gets refunded after 5-6 months at the end of the financial year. For a startup any proportion of liquidity is critical. Government should propose a solution such that loss making startups don’t have to part with critical liquidity.
Capital Gains Tax: Creating personal wealth is one of the core motivations for entrepreneurs to build startups. This ambition of personal growth often leads to creation of large enterprises that benefit thousands of people and is an enabler for the overall growth of the country.
Lesser capital gains tax in countries such as US and Singapore makes it more lucrative for entrepreneurs. Mr. Modi has announced relaxation in capital gains if they are invested in government schemes, however the relaxation should be across the board.
Simplified Policies: There are lots of policies, especially in the Companies Act where the processes are too complex for early stage companies, which often do not even have an accountant on board.
For instance, ‘Rights Issue’ has been made the mandatory process for allotment of shares. For startups, which often go through multiple rounds of funding these procedures are not only expensive but also time consuming and confusing. Simplifying such processes will go a long way in enabling founders to focus on core business areas.
Guest Post by Sachin Gupta, Co-founder and CEO of HackerEarth