Nasscom calls for tax exemption for startups in pre-Budget wish list

In its pre-Budget recommendations, National Association of Software and Services Companies (Nasscom) has asked the finance ministry to exempt startups from direct and indirect taxes including minimum alternative tax (MAT). According to the software industry body, the move would reduce compliance burden and reduce cash outflows.

Nasscom also said there is an urgent need to remove angel tax that serves to tax the capital receipts, when the availability of financing from recognised sources such as banks and venture capital funds is unavailable and angel funds are the only available source.

It also strongly recommended that companies may be allowed to carry forward losses even if there is change in ownership structure, in case it is for capital infusion in the entity.

The Union Budget will be announced in February.

"Policy regulations like ease of compliance, reliance on self-certification instead of audits, tax exemptions for startups will allow entrepreneurs to devote their time, energy and resources to build upon their innovative ideas," said R Chandrashekhar, president, Nasscom, in a statement. "With the number of tech startups in India growing over 40 per cent over the last year, these startups can potentially develop innovative solutions to address the development needs of the country as startups focus on development solutions for health, infrastructure and energy amongst others."

Nasscom has also shared recommendations to enable investments in startups. Investments in early stage startups are high risk and there is a need to rationalise tax rates for investors. The body, which represents the Indian IT industry, also asked the government to harmonise capital gains tax for resident investors with non-resident investors and tax rates for angel investors; allow proprietary domestic capital to set up a limited liability partnership (LLP) as an investment vehicle; and exemption of capital gains tax on income from sale of equity of a startup if the proceeds are reinvested in securities of new startups.

Nasscom also pointed out that there are disturbing trends whereby states are considering taxing e-commerce transactions thereby introducing barriers to technology adoption. Therefore, it proposed a high level committee to evaluate emerging trends and technologies, which should be institutionalised to provide inputs and triggers for policy roadmaps.