IT industry body Nasscom has said exempting startups from direct and indirect taxes, including MAT, will help reduce compliance burden and cash outflows for these new businesses.
The suggestion is part of Nasscom's pre-Budget recommendations for startup and e-commerce ecosystem to the Finance Ministry.
"There is also an urgent need to remove angel tax that serves to tax the capital receipts, when the availability of financing from recognized sources such as banks and venture capital funds is unavailable and angel funds is the only available source," Nasscom said.
The body also strongly recommended companies may be allowed to carry forward losses even if there is change in ownership structure.
"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," Nasscom President R Chandrashekhar said.
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, he added.
The industry body said there is a need to rationalise tax rates for investors as investments in early-stage startups are high risk.
Nasscom suggested that capital gains tax be harmonised for resident investors with non-resident investors and tax rates for angel investors.
Proprietary domestic capital should be allowed to set up an LLP as an investment vehicle and capital gains tax on income from sale of equity of a startup be exempted if the proceeds are reinvested in securities of new startups, it added.
Nasscom pointed that e-commerce has emerged as a powerful instrument encouraging people to transact online, offering traceability and transparency.
"However, there are disturbing trends whereby states are considering taxing e-commerce transactions thereby introducing barriers to technology adoption. Therefore, Nasscom has proposed a high-level committee to evaluate of emerging trends and technologies, which should be institutionalized to provide inputs and triggers for policy roadmaps," it said.
Regular dialogue has also been recommended between relevant government agencies and various stakeholders to keep the regulatory framework abreast of the times, the recommendations said.