Start-up industry's innovative ways, especially in areas of edtech, co-working, digital payments etc have transformed the landscape. However, they were also one of the hardest hit amid the pandemic as funds dried up and operations halted for many. Startups are now looking forward to FM Nirmala Sitharaman's Budget 2021 to give them a leg up in the road to recovery.
IT Industry body National Association of Software and Services Companies (NASSCOM) also suggested ways to support the start-up ecosystem in the country. Here's what the start-up industry is looking forward to:
Easier compliances: Compliance requirements consume a lot of time, effort and resources. It could be discouraging for many founders and start-ups. In fact, the government had also acknowledged the need to ease up compliance to encourage more activity in the ecosystem.
Simplification of taxes: Taxes too take up a lot of time for businesses and hence need to be simplified. Bhanu Chopra, Founder & Chairman, RateGain said, "An area that the government should look into is the simplification of taxes. Startups are high-growth businesses. If they are spending more than 1 per cent of their time to figure out their taxes, it's a great disservice to the nation. It will be ideal if the Finance Ministry can come up with a single clearance window."
Tax scrutiny: The government already has several measures in place to minimise and eliminate tax terrorism. "India is home to a new age of entrepreneurs, wherein not everyone intends to evade taxes and flee from the country. So, the scrutiny needs to end, especially if a company has received foreign funds. Similarly, if there are right tax incentives, the exodus of successful startups can stop," said Chopra.
ESOP taxes: NASSCOM in its recommendation said that taxation of Employee Stock Option Plans granted be levied only at the time of sale. It said this should not be made available only to eligible start-up but to all start-ups. "With many companies now restructuring employee compensation to include ESOPs for better liquidity crisis for the business due to COVID and the earlier amendments not addressing the' notional' tax liability completely, such a move would be of great encouragement. It also seeks exemption of all DPIIT recognised start-ups from Minimum Alternative Tax (MAT)," said NASSCOM.
Encouraging Indian investors: Start-ups are largely reliant on foreign investment to build on their reach. The government could encourage Indian investors to support homegrown start-ups. NASSCOM in its recommendations said that the government should harmonise tax rates for resident investors. Chopra added that domestic capital should be incentivised as the industry could benefit from this growth if the right nurturing and incentives are extended.
Qualification to be start-up: Currently a firm can be labelled as a start-up if the annual turnover cap is of Rs 100 crore. Increasing this threshold would allow exemptions to companies to over Rs 100 crore and hence supporting them in their growth story. It would encourage further expansion of the company.
IPO guidelines: Start-up ecosystem forever has growth stories to tell. The leaders of the industry are well on their way to list on public markets. While the government has hinted at permitting direct overseas listing, official guidelines are yet to be released. Investor-friendly guidelines would help these start-ups access new investment channels.
Also read: Budget 2021