Budget 2019: Good News for the Startup Sector in India
- All startups documented under the Angel Tax Act, who have filed all their documents will no longer be subjected to the Angel Tax Action which had been a backbreaker for budding founders and startups.
- To further encourage startups, 80 new livelihood incubators, and 20 technology incubators have been announced.
- Startups now can avail an extended exemption under section 54GB of the Income Tax Act, 1961
- There’s now a dedicated Doordarshan Channel to encourage startups to brainstorm and ideate with investors
The changes proposed in the Budget 2019 was a huge relief for thousands of budding startups and entrepreneurs in the country.
The Budget Announcement on July 5th, 2019, brought about a major breakthrough for startups by relaxing the much-criticized Angel Tax Regulation- which was introduced to wipe out Money Laundering by imposing a heavy premium on shares.
In any scenario, startups play a major role in taking the economy forward. But with the Angel Tax Regulation, the startup sector saw major hurdles, especially after many companies started receiving notices from the IT sector for failure to pay the dues. The funds streamed from Angel investors were taxed as income at a whopping 30 percent rate. This was a stalemate for startups and also subsided the scope of fundraising.
The Startup sector in India had been facing a hard time with three major hurdles since much before-
- High credit cost.
- Lack of fundings.
- And a plethora of regulatory compliances.
To make the situation easier for startups, the Government took an initiative last December. Firstly, the age cap for these companies was extended to 7-10 years before elections. Again, the definition of startups was widened with the intention to pool more funds from investors.
“To resolve the so-called ‘angel tax’ issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums,” said the Finance Minister in her maiden budget speech.
She added, “The issue of establishing the identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department,”.
There has been much controversy over Angel Tax Regulations for the startup sector in the past. While the booming entrepreneurs hoped for some relaxation in the Interim Budget, 2019, the odds were not in their favor. But with the latest Budget, the government has shown their seriousness about helping startups mushrooming in the country, encouraging the budding entrepreneurs to start their own companies in the near future.
New Tax Provisions for Startups under the Income Tax Act
- No more scrutiny for startups and investors who have filed the necessary documents, with regards to the share premium and valuation. The Income Tax Department won’t scrutinize any funds raised by a startup as per the new provisions.
- The carrying forward and setting-off of losses incurred by a startup are not subjected to any strict provisions anymore. Also, the Assessing Officers before conducting any Income Tax Return verification would require prior permission from their supervisory officers.
- Startups receiving funds through AIF Category-II no longer have to pay the Angel Tax w.e.f. 1st April 2019
India currently has over 30,000 startups out of which over 16,500 are recognized as last updated on March 2019.