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Relief for Start-Ups ; Government Plans Tax Reduction

A startup faces number of issues that have to be deal with in order to turn it into successful organization, and for that it has to follow regulatory environment, various legal issues, and the laws of the country where the startup is proposed to be set up. Indian Government is planning to change tax structure to permit text benefits for startups.

As per the current tax structure, Indian angel investors are required to pay 33% tax for short-term capital gains from their investments in startups and its 20% for long term gains with holding period of 3 years, which can be included as the highest tax structures of the world.

A National Association of Software and Services Companies reported that India is one of the five largest startup communities which creates jobs more than 80,000.

Senior government official said that, “We want to bring the world’s best practices to India. While banks can provide the debt, equity has to come from venture capital funds, angel investors. Many countries exempt them from tax to encourage startups, why can’t we?”

An official said, “70-80% of startups in the country are tech related and we need to find a way to encourage private capital and long-term investment in Indian tech startups.” He added that, “We completely understand that we need to encourage investment and taxes need to go down if capital funding has to flow into the startup ecosystem if we want to recreate a Silicon Valley here.”

Co-founder of the Indian Angel Network and Nasscom, Saurabh Srivastava said that,

“It is a very, very positive step, and which could turn out to be transformational for the country’s startup ecosystem. We’re not asking for extra benefits, all we want is to be aligned with the public markets.”

Some entrepreneurs relocated to other countries such as Singapore and Hong Kong to get benefits of  easy and helpful corporate rules instead of complex and hard procedures.

Nitin Saluja, founder of Chaayos, a Gurgaonbased chain of upscale tea shops said that, “If we want to boost manufacturing, we have to start with single-window clearance. Tax breaks for investors and even employees for things like Esops (employee stock options) will help us attract more talent, create more jobs and up the risk appetite.”

Central Government levies below taxes:

  • Income Tax: Tax on income of a person
  • Customs duties: Duties on import and export of goods
  • Central excise: Taxes on Manufacturing of dutiable goods
  • Service tax: Taxes on provision of services

State Governments levies:

  • Value Added Tax (VAT)
  • Stamp duties and Land Revenue
  • State Excise

Current Taxation Structure for Individual resident aged below 60 year :

Taxation Structure Tax
Taxable income does not exceed Rs. 2,50,000/- NIL
Taxable income between Rs. 2,50,000/-  to Rs.5,00,000/- 10% of amount by which the taxable income exceeds Rs. 2,50,000/-.Less ( in case of Resident Individuals only ) : Tax Credit u/s 87A – 10% of taxable income upto a maximum of Rs. 2000/-
Taxable income between Rs. 5,00,000/-  to Rs.10,00,000/- Rs. 25,000/- + 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-
Taxable income exceeds Rs. 10,00,000/- Rs. 125,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/-

Srikanth Meenakshi, an entrepreneur said, “Any relaxation of constraints will definitely percolate handing out of Esops through the chain of the organisation, which currently isn’t the case in India, as it is in… the US.”

Ankit Bhati, co-founder of taxi aggregator Ola said that, “We are one of those few economies in the world where there are so many billion-dollar opportunities waiting to be created.” Minister of State for Finance, Jayant Sinha said, “India is expected to surpass the UK in terms of number of startups launched and would be behind only to the US. There is need for more funds that focus on startups and growth stage MSMEs.”

PM Narendra Modi said by addressing “Start-up India, Stand up India” campaign during his Independence Day speech in Delhi that,”We are looking at systems for enabling start-ups. We must be number one in start-ups… Start-up India; Stand up India,” in order to inspire more Indians into entrepreneurship. Government created a special fund ‘Aspiration Fund’ to promote India’s latest Make in India vision, and to provide easy funding for startups, in August.

To boost startups in India Mudra bank has announced Rs 20,000 crore, earlier this year. For startups RBI has even decided to fund Rs 2000 crore for Indian startups in 2015.

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