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Ease tax burden on start-ups, says Nasscom's Rajat Tandon

Rajat Tandon     February 25, 2015

The entrepreneurship wave in tech-driven ventures has caught on. With more than 3,100 start-ups in the fray, a significant percentage of which are likely to be disruptive, and an additional 800 being added annually, there is a distinct need to address their concerns on a priority basis. However, the ecosystem is riddled with difficulties and lacks a comprehensive support framework.

Competitiveness necessitates an optimum price point. Dual levy of service tax and VAT on pre-packaged software, as is the case now, adds to the cost. This impacts start-ups adversely - an anomaly that needs correction. In purview of the expanded definition of royalty, payments towards software are now treated as royalty. The associated 10 per cent TDS, therefore, poses challenges for small companies that are often not profitable and have to wait for refund. Cash-strapped as they are, it only constricts working capital. Funding is not easy to come by. While angel investors are a recourse, taxing the investments received is causing hardship. This 'angel tax' is proving to be a misnomer. NASSCOM's recommendation regarding its abolition is backed by substantive reasoning, and hopefully we will see a change.

Perceptibly, the world is shying away from property ownership and veering towards experience sharing. Subscription-based software-as-a-service (SaaS) models mandate a recurrent billing system. To remain competitive, a one-time authorisation for subsequent billing periods is required in place of existing RBI guidelines; else operational bottlenecks will severely impact growth and rob the sector of its potential. NASSCOM has been rather pursuant in following up with the RBI, and the apex bank's recent announcement to allow single authentication payment norms for low value e-commerce transactions certainly brings in a breath of fresh air. Clear guidelines are now awaited to make it fully operational.

The country is on a transformative path. It is an opportunity for collaborative models to work, and towards this, creating a level-playing field for start-ups and smaller companies becomes imperative. Participation in government projects entails clearance of stringent qualifying criteria. Start-ups and SMEs often are left out due to eligibility and experience criteria preventing them from even crossing the first hurdle. This needs simplification and special consideration. Delayed service tax payments attracting up to 30 per cent interest rate is punitive, and it is recommended that such rate be normalised to a favourable 18 per cent. Given that dynamism drives business environment, threshold limits offering compliance relief to SMEs need timely revisions as well. NASSCOM has suggested a threshold limit be introduced such that companies below a certain threshold revenue may be exempt from MAT (Minimum Alternate Tax) applicability.

World over, many countries are known to be actively wooing start-ups and creating favourable conditions. In fact, large companies are working closely with start-ups and they complement each other in developing next-generation products and solutions. Incentivising start-ups through schemes like R&D credits, off-setting R&D, manpower and training costs are ideas that have merit, and they are being offered globally. Coupled with a benign tax regime, it can prove to be an effective impetus for growth. Definition of technology start-ups and early-stage companies that are developing products and solutions needs to be established, and NASSCOM has made suggestions to the government in this regard.

The last Budget mentioned a significant outlay of Rs 10,000 crore for promoting entrepreneurship. Hopefully, this Budget will bring in much cheer if the finance minister is able to elaborate on its operations and future plans. Reports indicate that we are growing faster than China, which puts us in a favourable position. Come end-February, we wait with bated breath and high expectations on what exactly will unfold that will take start-ups on a long-term growth path.

(The author is Senior Director, Nasscom 10,000 Startups)


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