SUMMARY
DPIIT fears the proposal to withdraw exemptions from the foreign investors, effective April 2024 will further impact the startup ecosystem
The contradictory move by the government is speculated to pose a threat to the financial needs of the startups
DPIIT is worried that this may lead to foreign investors keeping their hands off the Indian market, eventually affecting the Indian startup ecosystem
The Department for Promotion of Industry and Internal Trade (DPIIT) has raised a few concerns related to the startup community of India with the finance ministry.
According to an Economic Times report, the body raised issues with the finance ministry on the ‘Angel Tax’ in the Finance Bill, 2023. This tax covers investment in any private business entity.
While the funding winter chills the hands of the Indian entrepreneurs, DPIIT fears the proposal to withdraw exemptions from the foreign investors, effective April 2024 will further impact the startup ecosystem. DPIIT is worried that this may lead to foreign investors keeping their hands off the Indian market, eventually affecting the Indian startup ecosystem.
ET reported that an official, aware of the situation, said that talks were on with the revenue and economic affairs department, as funds raised on a startup’s market valuation also increases tax liability for them.
Manmeet Nanda, DPIIT joint secretary told the publication that there has been a 40% increase in the number of startups registered with DPIIT, from 2016. Amid such a scenario, the contradictory move by the government is speculated to pose a threat to the financial needs of the startups.
It is prudent to note here that, on March 24, the finance bill was passed in the Lok Sabha with as many as 64 amendments to the proposed draft. However, the Bill has failed to address any of the startup’s concerns related to the provisions of the angel tax introduced in the Union Budget 2023-24.
But before it happened, Anurag Jain, DPIIT secretary, waiving off the negative speculations about the new amendment proposal to Angel Tax, said that it is not going to affect the startups. As per Jain, startups recognised by the DPIIT are out of the purview of this.
T V Mohandas Pai, partner at Aarin Capital and former CFO of Infosys told Inc42, “For startups, Budget 2023 is a big disappointment. We wanted a reduction in the long term capital gains tax from the existing 20% to 10%. It did not happen. Startups wanted ESOP taxation at the time of sale, but that also did not happen.”
An Invest India report states that in FY 2014-15, the foreign investment in India was $ 45.15 Bn, which increased to $ 60.22 Bn in 2016-17 and the highest was recorded during the FY 2021-22, which was $ 83.57 Bn.
