Startups' budget wish list: Tax sops, protection of early-stage investors

With budget 2017 set to be announced tomorrow, expectations are rife that the government will take measures to reduce costs for startups in their early years, including a longer tax holiday than the current three years. Startups are also seeking lower income tax slabs for their employees as well as protection of early-stage investors from policy measures like 'angel tax'.

Besides, the startup community is hopeful that the government will take steps to incentivise digital payments, especially in the aftermath of demonetisation.

Here is a quick peek into what the stakeholders of India's startup ecosystem want the budget to deliver.

Madhur Deora, CFO, Paytm

Deora says budget 2017 is expected to encourage digital payments and universal access to financial services. "It's important for our country to create a robust infrastructure offering high-speed, reliable Internet access to one and all. Improving access to digital services with tax rebates on the production of affordable smartphones and offering subsidised data will also go a long way in democratising India's payments sector," he said.

"We need to focus on digital money by strongly encouraging digital payments of all forms. Waiving off transaction fees for low-ticket purchases and enhanced access to credit would also help bring millions of unbanked and under-banked individuals into the folds of the mainstream economy," Deora added.

Mayank Bhangadia, CEO and co-founder, Roposo (fashion social network)

Bhangadia is expecting significant tax exemptions that would give a boost to all existing and upcoming Indian startups. Taxing startups at early stages of investment has put a limitation on their performance and morale, he says.

"Angel funding is the very first resource, the very first encouragement for a startup, and tax levied on the same acts like a major deterrent to the growth of many novel ideas. With the new budget, early-stage investors should definitely be protected against archaic policy measures like the angel tax, which should be completely done away with," Bhangadia says.

"Also, the government should help startups reduce their costs in the early years rather than offer tax holidays for the first three years because most startups don't make profits in their early years. For example, lowering income tax slabs for startup employees should immensely help startups reduce costs," he adds.

Vidhya Shankar, executive director, Grant Thornton India LLP

Shankar says the Indian startup ecosystem will continue to grow on the back of the burgeoning number of tech and non-tech startups launched, impetus via the Startup India policy and a significant capital pool ready to be deployed by existing VCs. Clearly, any efforts to harmonise taxation will have huge multiplier effect on the entire ecosystem as it will significantly increase the investor base both within India and from overseas beyond the US, such as the UK, Europe, Japan and China.

"The 3-year tax break for start-ups was scheduled to kick off from 1 April 2016, which doesn't help early-stage funded and already operating startups. The government needs to move the tax holiday by at least three years, so that funded and operational startups benefit rather than only new ones which may or may not utilise the tax break," Shankar says.

"Also, we have one angel investor per six startups roughly, whereas the US has the inverse ratio...early-stage investors should be protected against anachronistic policy measures, such as the angel tax applicable due to capital gains should be brought down to 15% from 33% and the holding period to one year from two years," he adds.

Arun Bhati, founder and CEO, Orahi (carpooling app)

Bhati says incentivising digital payments is critical for growth of cashless transactions. "Existing surcharges in uploading money in wallets, or payments to credit/debit card companies only discourages people. (I am) expecting the budget to provide incentives to go cashless," he says.

Bhati also seeks a longer tax holiday for startups. "Startup India is an excellent initiative...but three years of tax rebate do not help much as it takes at least three years for a startup to get to a viable level. The government should increase tax rebates to five years, so that startups can re-invest their savings into the company," he adds.

Rajiv Raj, co-founder and director, CreditVidya (fintech startup)

Raj expects an increase in the income tax exemption limit for the salaried class, to boost consumption. "The initiative by government-controlled petroleum companies to provide 0.75% discount on digital payments for petrol and diesel is commendable. Additionally, if the basic income tax exemption limit for the salaried is raised from Rs 2,50,000 to Rs 5,00,000, the drastic fall in consumption triggered by demonetisation can be addressed," Raj says.

"The government can support the growth and sustenance of startups by increasing the tax exemption period from the current three years to five years or more. Corporate tax slabs should be reduced from 30% to 25% to make the initial journey of startups easier," he adds.

Suchi Mukherjee, founder and CEO, Limeroad (online fashion store)

Mukherjee says tax slabs should be adjusted in a way that the number of people in the tax net doesn't come down, but their tax liability is lowered, to provide them with more disposable income.

"To boost MSMEs, the limit of presumptive taxation should be increased to Rs 5 crore. This action will simplify the procedure and conserve resources for small-scale vendors," Mukherjee adds.

Shailaz Nag, COO, PayU India

Chief operating officer at the Naspers-owned online payments firm, Nag says the demonetisation drive needs to be followed up with strong and systematic steps, including roping in users from Tier 2/3/4 cities and towns. "My only expectation from budget 2017 is availability of enough funds for creating awareness among Indian users, both merchants and consumers, on how to pay and accept payments digitally."

Harshvardhan Lunia, co-founder and CEO, Lendingkart Technologies

Lunia's wish list features measures for both the e-commerce industry and startups. He says the Indian e-commerce industry, which is looking to reach $28 billion in turnover by 2019-20, would be hoping for some positive outcomes, both in terms of tax relaxation and more freedom of operations.

"The sector would be eagerly awaiting the centralised registration under the proposed GST regime...Moreover, it will also look for more clarity on FDI through the automatic route in B2C e-commerce. Also, a lot of e-commerce companies would be expecting the cap on business coming from a single vendor/marketplace to be increased beyond 25%," Lunia says.

"Timely implementation of GST will help reduce effective taxes on goods and services. The government also needs to think about extending tax breaks for startups. Currently, the tax break is three years, which is too short a time-frame," he adds.

Manavjeet Singh, founder and CEO, Rubique (fintech startup)

Singh says startups need tax sops for financial sustenance, and the government could help them through several provisions. "There is expectation of various sops, such as exemption under minimum alternate tax (MAT) for startups, tax concessions on ESOPs, unlisted securities and convertible instruments. The government should recognise technology startups' contribution to the vision of Digital India by considering extra incentives/concessions for them," he says.

Raghav Himatsingka, founder and CEO, Truckola (tech-based transport company)

Himatsingka says the logistics industry accounts for nearly 14% of India's GDP and plays a vital role in the nation's overall growth. "Make all toll taxes a fixed, one-time charge payable annually. This will increase vehicle flow on highways leading to faster transit times, better vehicle utilisation, less on-road traffic, less accidents and better freight cost efficiency. Speedy implementation of GST will make borders completely porous and increase vehicle utilisation, leading to better freight efficiency," Himatsingka says.

Roma Priya, legal adviser and founder, Burgeon BizSupport LLP

Priya says the startup community is looking forward to faster procedural clearances and widening of the tax holiday period from 3 years to 5-7 years.

MAT exemption for startups, tax concessions on ESOPs, unlisted securities and convertible instruments, and lower holding period for long-term capital gains for unlisted securities are some of her other key expectations from the budget.

Kapil Hetamsaria, co-founder and CEO, Velvetcase.com (online jewellery store) 

Hetamsaria expects a reduction in interest rates, across verticals, to boost retail spending. "With steps being taken to promote the cashless economy, the cost of online transactions should come down. Also, the execution of GST will simplify complexities and lead to easier, quicker and smoother ways for the movement of products across the country," he says.