Skip to main content

Tax on seed funding to be scrapped

The government has decided to scrap a tax on seed funding provided to start-ups by Indian angel investors in the upcoming Union Budget, to help domestic financiers bankroll new entrepreneurial ventures under its Start Up India campaign.

Finance act 2013 introduced a tax on seed capital provided to startups by domestic angel investors ,thus domestic angel investors are subjected to double taxation.

  • The tax provision in question treats infusion of funds by domestic angel investors as income in the hands of the start-up, making India the only country in the world to penalise local angel investors in such a manner.

  • Tax is one of the key reasons that 90 per cent of Indian start-ups are financed by foreign venture capital and angel funds.

  • This tax applies only to domestic investors.

  • The problem is that tax is levied at the time of investments not at the time of booking profits, so it discourages domestic angel investors who are keen to bet on start-ups as the stock markets are not going anywhere.

  • The tax treatment and difficulties of doing business in India as start-ups attain scale, make it attractive for such ventures to relocate out of India to countries like Singapore.

  • 65 per cent of successful start-ups that began in India have moved out of the country.

  • According to estimates by the team of officials working on the Start Up India programme, start-ups in the country received around 9 billion dollars of funding in 2015.

  • Returns made by domestic individual investors from their start-up investments are taxed at the highest marginal personal tax rate (around 33 per cent), while investments routed through a Mauritius-based fund or by corporates who only need to pay long term capital gains tax of around 10 per cent are taxed much lower.

What is seed capital ?

Seed capital is the funding required to get a new business started. This initial funding, which usually comes from the business owner(s) and perhaps friends and family, supports preliminary activities such as market research, product research and development (R&D) and business plan development.

who is an angel investor?

SEBI (Securities and Exchange Board of India) has defined Angel Investor as a person who proposes to invest in an Angel Fund and who has net tangible assets of at least two crore rupees, in individual capacity, excluding value of his principal residence, and who:

  • has early stage investment experience, or

  • has experience as a serial entrepreneur, or

  • is a senior management professional with at least ten years of experience;

5  things about start ups :

* Startups are projected as the next big employment generator in the country

* Startups can play a key role in the delivery of various government programmes through the building of apps
* The biggest challenge for startups is on the ease of doing business as multiple regulations distract them from their core objective
* The current tax regime has forced many startups to register themselves overseas and in the process losing the value created in India
* A change in tax regulation can boost further investments into the startup segment

Labels:

Comments

Post a Comment

Popular posts from this blog

India Tech Vision-2035

India Tech Vision-2035 India's technology thinktank under the ministry of science & technology has come out with `Technology Vision 2035' here at the ongoing Indian Science Congress, identifying the challenges ahead and how they can be dealt with through technological interventions while realising the dream of a developed India by the year 2035. The thinktank -Technology Information, Forecasting and Assessment Council (TIFAC) -in the vision document lists a technology roadmap for India, giving details of 12 sectors and technologies that in some cases exist but need to be deployed, some in the pilot stage that must be scaled up and technologies in R&D stage. It, in fact, talks about many future technologies, ranging from flying cars, real time translation software, personalised medicine, wearable devices, e-sensing (e-nose and e-tongue) to 100% recyclable materials among others which may be used in different areas to solve day-to-day problems “The trajectories del...
Post a Comment
Read more

Inland Waterways in India

Here are some key points you need to know: The bill seeks to add 106 inland waterways to the existing six National Waterways on the recommendations of the Parliamentary Standing Committee on Transport, Tourism and Culture and comments of several state governments The bill will also look after the renovation and maintenance of the existing waterways Out of the 106 new waterways, 18 have already been identified. These include five waterways each from Karnataka and Meghalaya, three each from Maharashtra and Kerala, one each from Tamil Nadu and Rajasthan The bill also aims to help the Inland Waterways Authority of India (IWAI) to develop the feasible stretches for Shipping and Navigation. Let us look at the six existing National Waterways in India: National Waterway 1 (NW1) The National Waterway No. 1 uses a 1,620-kilometre stretch of the Ganges River. It was declared a national waterway in the year 1986 and runs from Allahabad in Uttar Pradesh to Haldia in West Bengal....
Post a Comment
Read more

Budget basics: A glossary of terms used in Budget

Disinvestment Receipts The term refers to the money raised by the Government through disinvestment, or the sale of its equity stake in companies it owns. Fiscal Responsibility and Budget Management Act The Act is an attempt to make the Government adhere to a phased plan to reduce fiscal deficit, which denotes an excess of expenditure over revenue. Dividend Distribution Tax This is a tax levied on companies that pay out dividends to its shareholders, i.e. share a portion of earnings with them. Venture Capital Funds These are funds that invest in startups, a financially riskier proposition than investing in established companies. Securities Transaction Tax It is a tax on all transactions done over the stock exchanges involving securities such as shares, derivatives, and equity-linked mutual funds. Wholesale Price Index (WPI) It is a measure of inflation, or price change, arrived at after regularly measuring the prices of a slew of wholesale goods. Consumer Price...
Post a Comment
Read more