By Sridhar R.
India is currently the third largest startup ecosystem in the world, with over 100 unicorns and over 80,000 startups recognized nationwide by the Department of Industry and Internal Trade Promotion (DPIIT). The sector has seen a steady rise in SaaS-based companies, GCC, and several tech startups including AI, robotics, space tech, fintech, and more.
Despite a slowdown in fundraising, PE/VC funds have completed 1,130 startup deals in 2022, according to Venture Intelligence. Older companies can be seen as contributing significantly to the competitiveness of the Indian market. There is a ton of dry his powder available to support the Indian startup ecosystem and trigger a takeover deal or his potential 2023 IPO.
That said, the country should continue its quest to promote the startup environment and encourage PE/VC funding to the startup ecosystem. played a very important role in shaping
Allocation of Rs 283.5 Million for Startup India Seed Fund Scheme Rs. 1,000 kroner for Fund of Funds for Startups, facilitating the creation of a fund for AgriTech startups through NABARD, facilitating new-age companies by promoting Drone-as-a-Service, expert committee to oversee the mobilization of funds The Association of Venture Capitalists and Private Equity Startups was part of an initiative that gave the startup sector a good boost.
There is so much more that can be done to build a startup ecosystem and harness the power of technology and digital to realize the vision of a $5 trillion economy.
Last year’s announcement on tax incentives and relief limited the long-term capital gains (LTCG) surcharge on all assets to 15% and extended the formation period for eligible start-ups for tax incentives. Goodwill was shown, such as extending it by one year. On promoting a good startup environment. We hope that this year’s budget will continue to focus on the startup environment.
To better understand what to expect from Federal Budget 2023, Grant Thornton Bharat conducted a survey of the technology and startup sectors. The survey showed that ease of doing business is the most difficult issue facing startups. Primarily, the need for a single-window clearing mechanism dominated the concerns, followed by clarifications on overseas listing regulations and long-term capital gains (LTCG) tax treatment and tax parity. Last but not least, a capital gains tax exemption for startup investors is desired.
Some of the recommendations are detailed below.
First, we need a single-point approval mechanism through which startups can claim tax and regulatory incentives. Currently (a) recognized by the DPIIT as a start-up company (using a set of eligibility criteria) and (b) subsequently applying individually to tax offices to claim tax incentives such as income tax deferment or income tax exemption requires a series of separate applications. Exemption from angel tax (i.e. company tax on the premium received to issue shares). These exemptions must be claimed separately and have distinct conditions that must be monitored separately, complicating the regime. A single point of contact clearance with a common set of conditions can help companies save a lot of time and effort on compliance and make the benefits more meaningful. This wish list includes issues such as claiming tax deferred benefits for employees of startups issuing shares under the ESOP scheme. This exemption has several limitations and conditions, making it impractical for startups and their employees to make such claims. This situation also applies to certain benefits provided under the Companies Act, such as the issuance of convertible bonds. All in all, it’s a complex system to follow.
Second, the budget contains a strong expectation that capital gains tax rates will be harmonized. Capital gains from the sale of shares in unlisted companies are currently taxed at 20% or the applicable Slavic rate, depending on the period of holding such shares (i.e. 24 months or more or less). In contrast, long-term profits on shares of listed companies are taxed at a rate of 10% if the amount of profits exceeds INR 100,000. For listed stocks, the holding period subject to long-term interest rates is also reduced to 12 months. Therefore, there is a natural incentive to invest in listed stocks. Because when investors consider investing in startups, they risk higher returns and pay higher taxes. A similar disparity exists in the treatment of long-term capital gains for resident and non-resident investors, with the non-resident he is offered a surprisingly low tax rate of 10%.
Third, investors may find investing in start-ups to be efficient if the capital gains tax exemption for reinvesting the proceeds of one start-up’s stock in another start-up is exempted. there is. This one step could significantly increase investment in the Indian startup environment.
Additionally, the budget is expected to create a more open environment for opportunities to raise funds from both domestic and foreign investors. Measures to clarify that tax-neutral offshore mergers or restructurings of foreign companies owned by Indian investors will provide greater flexibility for takeovers and offshore listings. This is an unfulfilled request and we hope that this budget will help the sector in relief.
Furthermore, relieving the investor community by lowering the effective tax rate for high income earners will help Indian startups gain access to capital.
Finally, there is always the potential to simplify the current withholding tax regime and introduce a more effective tax dispute management system. We can also harmonize international tax systems such as advance pricing agreements, safe harbor rules and equalization taxes. Improve the country’s international attractiveness and improve the ease of doing business.
In addition, we will strengthen the capital market for the listing of emerging companies (high-risk, high-growth companies), create a crowdfunding platform (such as the social stock exchange under consideration), and invest in the establishment of the State of State. promote. – Jointly run by industry professionals and academia, Art Incubation Centers can transform and fund budding ideas into sustainable businesses of the future.
Efforts in these areas could ultimately lead to building a robust platform and ecosystem for Indian startups.
(Slider R, Partner – Tax, Grant Thornton Bharat LLP. The views expressed in this article are those of the author and do not reflect the official position or policy of FinancialExpress.com. )