Reverse the Startup Tax Please!

Reverse the Startup Tax Please!

Tuesday February 26, 2013,

3 min Read


The Finance Act 2012 brought in an amendment to tax the share premium which is above the fair value of investment by the resident angel investors and not proven satisfactorily to the tax assessing officer. This amendment is effective 1 April 2013, please reverse it Mr. Finance Minister!

The fledgling Indian startup ecosystem has now started to thrive on the early stage investments by the angels, who invest based on startups creating value. Startup tax is anti entrepreneurship.

World-wide providing tax breaks to startups has helped the economies grow and create jobs. What would help is:

  • New businesses could write off Rs. 5 lakhs in startup costs
  • Startups can write off new capital investment upto Rs. 10 lakhs
  • Angel investors who invest into startups over the next 5 years, be exempted from capital gains tax, if reinvested in another startup.

Understandable Taxes!

Mr. Finance Minister, you have been planning on clarity on double taxes (service tax + VAT) on software and software products for a while now. Can you prioritize that please? If knowledge economy is one of India’s strength, can you please help make it more robust with taxes which are rationalized? And now?

Reduce the confusion and be less litigious. How about that for a change?

GAAR, domestic transfer pricing, reclassification of equity into loan based on valuations, is adding confusion. Mr. Finance Minister, unpredictable tax/rules is now becoming the number one risk of investing in India. Is it a lot to ask for the tax department to make up their mind on what rules they want to play, codify and then stick with it?

The new age entrepreneur is ambitious and wants to win global bets. The least to do is enable them!

Starting and doing business in India has never been easy and it is forcing the Indian entrepreneur to find eco-systems which are friendly. Unless some quick steps are taken, the startup guys would have just migrated and started value creating entities outside India, and India would continue to remain a development centre with marginal benefits of cost plus models.

Women Entrepreneurship!

If 50% of population is women, wouldn’t it be nice if there is a fair representation of women in business? Statistically, women face obstacles of external finance and being stereo-typed. She starts less ambitious with small resources and little finances. But she creates a deep societal impact. Easily available finance schemes that which is not obtuse and not hard-to-figure-out will go a long way!

About the author:

Sharda Balaji, founder NovoJuris. She can be reached @shardabalaji

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