Impact of Politics on Startups

What the New Govt. should focus on in 2019

 

Politics can have an enormous impact on how Start-ups can either thrive or grow or get mired in legal and legislative battles. The Narendra Modi-led coalition for a second term with a strong mandate is likely to help the Government help implement reforms smoothly. In the last 5 years, India has witnessed the implementation of some impactful initiatives including that of Digital India and Make in India which continue to benefit the growth of the economy.

India is undoubtedly one of the best markets for start-ups and its investors, given its growth potential. The foundation of the ecosystem is already in place with India being the third largest hub for start-ups globally.  The current government has given a fillip to startups with initiatives such as Start-Up India which enables self-certification, rebate in filing patents, income tax exemptions, easier public procurement norms etc. The new government should further enhance the vibrant start-up ecosystem wherein startups can collaborate seamlessly and share knowledge and technical expertise. This will help India to leverage its entrepreneurial potential and become a hotbed of unicorn start-ups across different sectors.

Reports now suggest that economic growth slipped to a five-quarter low of 6.6 percent in October-December 2018 and that consumption demand has weakened. So, one of the first tasks of the new government would be the recovery of the economy and put it on a high-growth trajectory to reach 10 percent and to speed up private investment.

ANGEL TAX

Simply put, this is a tax of about 30% levied on the investments made by external investors in startups. The amount that is considered above “fair value” valuations of the startups is classified as “income from other sources” and is taxed under 56(ii) of the Income Tax Act. About 2,000 startups had received notices demanding tax on the angel investments received.

After the Department for Promotion of Industry and Internal Trade (DPIIT) notified norms for startups to seek exemption from Section 56(2)(viib) of the I-T Act, startups complain that little work has been done on the ground to bring them relief from the so-called ‘Angel Tax’ demon. When entrepreneurs have to go through a tough process for raising capital, any taxes on the capital raise is likely to kill the startup ecosystem.

INCENTIVES

For startups, this government may need to bring more incentives to either in the way of tax incentives or business support.

To state a few, Amendments in Section 54GB (capital gain on transfer of residential property not to be charged in certain cases) and Section 79 (carry forward and set off of losses in case of certain companies) of the Income Tax Act, will help aid business growth.

  • Changes in Section 54GB of Income Tax Act to exempt proceeds on sale of residential properties from capital gains tax, if it is used to fund a start-up.
  • Start-up promoters presently need to hold 100 per cent shares for carrying forward of losses. The requirement needs to be reduced to 26 per cent, as it will encourage new investors to invest in start-ups.

Startups will be the new industries of tomorrow and it is important to nurture them today for generating superior employment in the country.

JOB CREATION 

Even though there are no reliable statistics, the unemployment rate has undoubtedly been growing. The new government needs to certainly concentrate on the sectors that create a large number of jobs – construction, tourism, textiles, and services. The government should lay even greater emphasis on skill development and training programme and creation of technology hubs and allied training centres to bridge the skill gaps of the youth and create a pool of employable resources in the country.

WORKING CAPITAL

It is no secret that GST led to extreme shortage of working capital, to combat which there is no backup plan in place. The new government is expected to make working capital more easily available at lower interest rates.

SETTING UP COMMON INFRASTRUCTURE

There are many small-scale startups in rural India that are working on real problems by using technology. The economy in 2019 will keep growing faster with higher use of technology to make systems efficient and transparent at the district level, which can easily be accessed by startups as incubation centres. This will can go a long way in realizing the potential. These centres may also be used for sharing resources.

Startup companies expect the government to lay down simpler and clearer guidelines, particularly in tier-II and tier-III cities, which would help startups get back in shape and widen reach.

The clear policy direction & ease of doing business will not only bring foreign direct investments but also create the environment of more entrepreneurship.

 

If you are a startup trying to make sense of all the legal and financial terms, you have reached the right place. Make us your compliance partner and focus only on what drives your startup. Click here to get a call back from us.

2 thoughts to “What the New Govt. should focus on in 2019”

Leave a Reply

Your email address will not be published. Required fields are marked *