Budget 2016: Start-ups bat for tax sops, investment incentives

Investors in start-ups also expecting rationalisation in capital gains tax

The start-up community, which has started facing funds crunch of late, is looking to the Budget for an easy tax regime, relaxation in investment norms and further incentives for innovation.

The country is home to over 18,000 start-ups, making it the third largest in the world after the US and England.

"iSpirt has represented to the finance ministry that a small basket of tax sops merely will not be effective for the existing system which is riddled with several bottlenecks," co-founder of iSpirt Foundation Sharad Sharma told PTI.

It has submitted a 36-agenda point to the finance ministry representing various hurdles that start-up face today.

Investors in start-ups are also expecting rationalisation in capital gains tax and want this should be aligned with the current tax regime for investments in listed companies, he said.

"Currently, start-up investors pay a much higher tax on capital gains while taking a higher risk compared to publicly traded firms. We expect that capital gains tax for alternative investment funds and angel investors will be aligned to the current tax regime for investments made in listed shares," Indian Angel Network President Padmaja Ruparel said.

The apex body for the IT industry Nasscom has also voiced similar concerns.

"Investments in early stage start-ups are high risks and there is a need to rationalise tax rates for investors," Nasscom 10,000 start-ups Vice-President Rajat Tandon said.

"start-ups should be exempted from direct (announced in start-up Action plan, but has limited impact) and indirect taxes including MAT, which would reduce compliance burden and reduce cash outflows," he added.

While the start-up India Action Plan announced several favourable measures, Indian Angel Network co-founder Saurabh Srivastava said the investors are hoping that the Budget would introduce the necessary measures to take it forward.

These include more clarity on the income tax exemption for start-ups, defining and identifying start-ups, setting up a credit guarantee fund, compliance waivers, and creation of a Rs 10,000-crore fund for start-ups, he said.

To incentivise innovation, iSpirt has given two important recommendations. First, creating a favourable tax regime for IPR to enable start-ups to establish their base.

Second, it wants investments towards IPR creation to be treated at par with capex in manufacturing from a taxation perspective.