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

Delhi Dialogue to focus on trading blocs (TPP) and Impact of TPP on India-ASEAN ties

Delhi Dialogue to focus on Impact of TPP on India-ASEAN ties The  impact of the U.S.-led mega trading and political blocs on India-ASEAN ties  is likely to be the highlight of the 8th round of  Delhi Dialogue . One emerging mega bloc, the  Trans Pacific Partnership (TPP), received a major boost recently with the joining of Brunei, Vietnam, Malaysia and Singapore (ASEAN Countries). Diplomats are concerned that India will have to adjust to  the new set of security and economic rules  as increasing number of Southeast Asian countries join TPP, which began taking shape with the arrival of President Barack Obama to the White House in 2009. “The process of joining TPP by several countries in Southeast Asia has highlighted the conflicting segments in the Southeast Asian region. Delhi Dialogue will give us a chance to assess how India will have to adjust to these mega trading and political blocs  emerging in this region which is vital fo...
Post a Comment
Read more

Indian Missile Systems and other developments 2015-16

#1. Defence Capability Enhancements   India’s biggest ship, aircraft carrier INS Vikramaditya, finally arrives source: NDTV.com INS Vikramaditya is a Kiev class aircraft carrier  which was commissioned by Russian Navy in 1987 under the name Baku. It was later renamed as Admiral Gorshkov and last sailed in 1995 in Russia, before being offered to India. India agreed to buy it in 2004 for $974 million. The cost kept shooting up as Russia delayed the delivery by over five years. INS Kolkata – Biggest warship ever to be built in India till date source: NDTV.com INS Kolkata is the lead ship of the Kolkata-class stealth guided-missile destroyers of the Indian Navy. She was constructed at Mazagon Dock Limited (MDL),  and was handed over to the navy on 10 July 2014.  A bit of an old news but mightier still! INS Kolkata, under the Project 15 Alpha, belongs to the destroyer class and is the first of three ships currently under construction Being wholly constructed...
Post a Comment
Read more