The Budget will have significant reverberations in the start-up ecosystem. Investors waited with bated breath for doing away with the draconian angel tax but that did not materialise.
The long-term capital gains tax exemption provided to listed equities suffered a major blow, with the removal of securities transaction tax in favour of a flat 10 per cent tax without any indexation benefits. The effect this will have upon the nascent SME (small and medium enterprises) listing platforms and the list in India initiative is still awaited.
TV Mohandas Pai, Chairman, Aarin Capital
Several experts expect this to be detrimental in two ways: One, tax-free exits for shareholders, which has traditionally balanced the increased compliance burden of listing, might have an impact on the appetite of start-ups to list; two, from a liquidity perspective, the effect this might have on foreign institutional investors and domestic investors, for whom the tax-free gains would temper the inherent volatility of listed start-ups, is still unknown.
The finance minister’s promise to rationalise foreign direct investment will be welcomed by both start-ups and investors. If the regime is more streamlined, this would be a great boon to the Stay in India initiative, as we might see the rise of start-ups with an Indian parent and a foreign subsidiary.